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Russia has launched an attack by armed forces on Ukraine and the event has sent shockwaves around the world. However we advised investors not to panic and stay invested in quality stocks given the ongoing uncertainty about Russia and Ukraine. The Sensex plunged over 2000 points in morning trade after Russian President Vladimir Putin announced a military operation in eastern Ukraine. Meanwhile, oil prices rose, surpassing $100 a barrel for the first time since 2014. Market participants were also concerned as India Ratings revised down its GDP growth forecast for 2021-22 to 8.6% from the previously forecast 9.2%. There was also some pessimism as foreign institutional investors (FII) remained net sellers of domestic stocks on Wednesday.
Should You Panic or Stay Invested?
According to us this is a time when investor’s patience and discipline will be tested. Markets are choppy and likely to remain so for some time, but that shouldn't deter a serious investor.
Investors should not panic and continue to stay long in India.
1) Balance sheets stronger than ever: India's corporate health is at its strongest in a long time - deleveraging has been seen across sectors and cash reserves have skyrocketed. As a result, corporate trust is high.
2) Promoters are optimistic about business potential: this is reflected in promoters' increasing participation in Nifty50 over time, rising from 32% to 45% over the past decade. Interestingly, post-Covid promoters have increased their share by around 3%.
3) Capital Expenditure (Capex): The private investment cycle is making a comeback. On the other hand, public investment spending remains strong, with the government providing a boost even in the latest union budget. The budget created a virtuous circle that would drive a multi-year growth cycle by focusing on sustained economic recovery through demand-side policies and supply-side reforms to jump-start the investment cycle and encourage private sector involvement.
4) China plus one: The strategy helps boost demand in certain sectors. Also, India's green energy transition opens up a whole new investment opportunity for investors.
5) PLI Program: The program is a major game changer that encourages and supports domestic manufacturing.
Entering and exiting investments based on undue reliance on recent performance is likely to lead to excessive trading and poorer performance results. This is the time to reassess the fundamentals, have faith in India's long-term potential and stay invested in it. The investors should continue to hold growth stocks and allow for volatility. Markets would be curious to see how the Ukraine crisis develops and what kind of countermeasures will be announced by the West. Post that one could expect a stabilization of the markets. Investors could add stocks in a staggered fashion once the market stabilizes, and as a strategy they should focus on domestically-focused companies for now.
