Market Crash: Advice For Investors

'This is a good time to restructure your portfolio because the sectors and stocks that performed in the last bull market may not perform as much now.'

On January 24, after four days of sharp selloff from 18,350 on January 18 to 17,150 on January 24, independent market expert Ambareesh Baliga had told Rediff.com that he was expecting Nifty to reach 16,000 levels if tensions between Ukraine and Russia continued to escalate.

Exactly a month later on February 24, Nifty is looking down at the 16,000 mark as it closed the day at 16,250, a huge 4.78 per cent cut in the benchmark index, as markets the world over tanked weighed down by Russia's military invasion of Ukraine.

As crude oil hovered around 98 dollars per barrel level in international markets and the US dollar rose 1.2 per cent against the Indian rupee, the markets also worried about India's balance of payments account, the fiscal deficit target set by Finance Minister Nirmala Sitharaman for fiscal 2022-2023, inflation and the rise in interest rates.

As the Nifty and Sensex crashed almost 4.8 per cent on February 24, Prasanna D Zore/Rediff.com spoke with Ambareesh Baliga and Deven Choksey of K R Choksey to take stock of how India is poised to weather this storm. Here's what they said.

Deven Choksey: 'If the markets don't hold this level (16,350), then we can easily see another 400-500 point fall'

Do you look at Thursday's selloff as panic selling or there is more to come in the days ahead as world figures out how the Russia-Ukraine conflict plays out?

We have seen a global fall and it is bound to happen that markets react to a variety of factors with different intensity.

Markets react to crude prices, war, uncertainty, differently. So, markets reaction is very relative in nature. Definitely, investors, big or small, would play it safe in such an environment, so this kind of fall is naturally expected. One will have to wait and watch how the situation pans out in Eastern Europe.

Do you see this panic abating in the days ahead or will it escalate further?

My point is that if this war/invasion with/of Ukraine doesn't translate into a global war situation even after (US and Western) sanctions (on Russia), then I think this panic will settle down.

Importantly, if war doesn't escalate then sanctions in themselves don't mean anything. So, markets will settle down.

God forbid, if this war happens, then too India is in a position to attract significant amount of money from global investors because they will then find huge value in Indian markets at a cheaper price.

Whichever situation you look at it, according to me, there is no need to panic; let the situation settle down.

What impact could this conflict have on India's macro economy and hence on Indian equity markets?

Whatever negative impact our economy faces will be transitory in nature. Higher inflation, higher cost of production, higher possibility of interest rate hikes, everything will be transitional.

Where will the markets settle down in this situation?

I can't say exactly how long the markets will take to settle down ,but this won't last permanently. Currently, the surge (in panic) has happened, but it will have to settle down.

Any key levels to watch out for in the days ahead?

16,350 was an important level, which broke today (Thursday, February 24) as the markets closed around 16,250.

If the markets don't hold this level (of 16,350), then we can easily see another 400-500 point fall. I think this is a possibility.

If markets settle down around after another 400-500 point fall, where should investors look at for value buying?

In every correction that we have seen this year, investors are seeing value because fundamentals of businesses haven't changed.

Will this conflict cast any shadow on the LIC IPO?

Too early to say anything (about the LIC IPO). Let us allow things to settle.

Ambareesh Baliga: 'If you are looking to buy Rs 100 worth of stocks you should buy stocks worth Rs 20 NOW'

When we spoke on January 24, you had said we could reach 16,000 levels on Nifty if tensions between Russia and Ukraine continue. We are almost close to that level. What next?

It is likely to break 16,000 now and move towards 15,000. Now, looking at the situation and the way things are it is unlikely to get resolved in the next two-three days. It will take a while longer, which means that tomorrow if we open lower, and most probably we will open lower, then I think we could see panic selling.

One can say today (Thursday, February 24) was a day of bloodbath, but we did not see the panic which we normally see in situations like these. Based on the developments we could see panic selling either tomorrow or on Monday.

What factors could help this panic to abate?

Difficult to say, but as of now if the tensions in Eastern Europe were to settle down in the next seven to 10 days one could see some semblance of calm (in the markets) then.

If tensions escalate, then no one knows where we could be headed to. We can see even lower (than 15,000) levels. As of now, one hopes that the situation will return to normal sooner and tensions will de-escalate.

What impact could this conflict have on India's macro-economic indicators?

We are going to see its impact on the Indian currency, interest rates, inflation and that's the reason the markets reacted (today). If oil goes towards 110 (US dollars per barrel) and possibly 120 (US dollars per barrel) if tension escalates further, then that will have an impact on our balance of payments because we import 85 per cent of our crude requirements.

At the same time, exports too will suffer because of geo-political tensions. Of course, our forex reserves are much better than what we had during the Gulf crisis (US invasion of Iraq in January 1991) and even a decade ago.

That will in fact lead to rise in inflation and interest rates, and we are already in that sort of a situation; even though the RBI has postponed the rate hikes (during its monetary policy meeting on February 10), they would still look at it in their next meeting.

We also don't know, looking at the situation, what will happen to the LIC IPO. If tensions escalate, it could get a bit difficult for the LIC IPO.

If government postpones it, then you miss FY22 target (of garnering divestment revenues and fiscal deficit) because we are still short of Rs 64,000 crore, which was expected to come from LIC.

If panic sets in and we head for another bout of selling which sectors and stocks could provide bunker-like protection to investors?

Sectors like pharma, autos to a decent extent because that is domestic market business, infrastructure plays and to a certain extent FMCG sector because I don't really see domestic consumption or manufacturing getting affected so much.

What's your advice for retail investors now?

If investors have cash in hand, they should utilise the next fortnight or three weeks to buy because this is an opportunity to buy and expect things to settle down.

Our experience of past several decades tell us that whenever tensions like these happen, markets settle down in some time.

End of the day, across the globe, nobody really wants situation to deteriorate further.

Don't wait for the bottom. If you are looking to buy Rs 100 worth of stocks you should buy stocks worth Rs 20 NOW.

In case you don't have cash to deploy, then this is still a good time to restructure your portfolio to ride the next move because the sectors and stocks that performed in the last bull market may not perform as much now.

If tensions further escalate, would we be heading towards March 2020 COVID-19 lows?

No. I think we have moved quite ahead of that already.