It makes sense to Buy at dips…

• Follow

The geo-political risk was escalating, but to outbreak into a war was a big surprise for the financial market. It is one of the biggest security crises seen in Europe since World War II. The world consensus, especially of democratic countries, was that a possibility of full-fledged war is low. The matter of differences was bilateral between Russia & Ukraine.

And it was highly expected that this tug of war will become a diplomatic war of the long-term. But the Russian dictatorship action, ignited by NATO intervention in Russian regions, has surprised the democratic world.

Buying opportunity on medium-long term basis

It has haphazard impacted the world equity market. Russian market collapsed by as much as 50% on the first day of the war, look at the extent of surprise in the local market too. World MSCI index was down by 3% and India by 5%.

The market attempted to recover from the next day taking advantage of lower valuations and taking a breath as the fresh US sanctions did not target at Russia’s oil exports and access to the swift global payment network.

May be again, but the world consensus, is that this war will end though may not be sooner. Also taking inputs from the statement by Putin that Russia do not intend to occupy Ukraine and can rely on the self-assurance that US & NATO will not directly enter in the bilateral war than by sanctions.

Is there a buying opportunity here? Yes, it makes sense on a medium to long-term basis. This war is unlikely to ruin the strength of the Indian economy rather than a short-term effect on fiscal deficit & inflation due to high energy prices.

We have seen a decent amount of correction in the broad market. For example, broad index like Nifty500, has seen 80% of the stocks correct by minimum 20% and maximum by 80%, simple average correction is about 30% from the respective stocks 52wk high.

There is an opportunity to deploy the free cash available in your portfolio. Of course, it should be on a stock-to-stock basis and step-up on a gradual manner and not lumpsum. For that the focus should be on value buying than growth because highly prized stocks are not expected to perform well.

Stocks trading at fair valuations, stable businesses & financial outlook should do well. Sector wise best ones will be Banks, IT, Pharma, Telecom, Consumption and Capital Goods. They are trading at fair valuations, around the averages of last 5yrs, and have good long-term business outlook.

Indian oil related companies are heavily impacted this week due to the high cost of crude & gas. It was also noticed that the industry operating profitability was impacted in this quarter by high cost of raw material and supply constraints.

This is expected to further continue in the coming quarters. In the short to medium term this sector will be impacted by the ongoing Russia-Ukraine war. Crude prices have crossed $100, this can quickly revert if the war position eases. On a long-term basis, stocks related to gas looks very attractive due to focus on renewable energy and consistent volume growth.

(The article is written by Vinod Nair, Head of Research at Geojit Financial Services)