Are we bottoming out?
For a nation having a mere 14 crore people and the blessings of Adidas it sure is rocking the world (literally). I will try to maintain a neutral stance throughout this article.
Indian markets have fallen by more than 13% from their all-time high and as someone who bought at the top this war is attacking my portfolio and it is bleeding. Now, this begs the question.
Are we bottoming out? Is this the right time to buy? should we wait for more? Who are we supporting? Whom should we support? Should we care at all?
Mr. Vladimir Putin has said that he has no intentions to occupy any Ukrainian territory. However, some speculations about fuelling separatist movements were there. It is however irrelevant to the Indian markets.
Was it NATO? Was it the EU? Was it just Russia being Russia? Or was it a major conspiracy theory about Russia not getting respect from OPEC and to hit back at them Russia thought,” Why not start a war and control global oil supply single-handedly”?
(Don’t ask me how do I come up with such theories, I don’t sleep at night)
Going by the above data, Nifty has corrected by more than 12% from its A-T-H (All-Time High) For the sake of convenience and not to get myself portrayed as an oldie I would use Nifty for references instead of Sensex.
Not to forget that Russian currency Ruble is Rubbished by this war (Proud of this wordplay)
The ruble has declined by more than 35% in less than 2 weeks.
Adding Insult to Injury. Russian Govt. knew what they were doing and they halted trading at the Moscow Stock Exchange initially but opened it later. Markets and money are cruel and they punished the government for interfering with free markets. MOEX (Russian Index/ Russia’s Nifty) fell by 35% within minutes. (35% for a national index to fall is crazy If Dow falls by 2% Americans declare it a ‘bloodbath’ and demand an answer from the Feds for the fall)
35% fall is equivalent to $200 billion wiped off. More than the entire GDP of Canada GONE! Within Minutes!
Coming back to India.
Some Macro factors that are going to change are:-
1) Oil Supply
The government has ensured that whatever happens in the Ukraine-Russia Crisis, the Indian populace has nothing to be worried about (Read: Apart from Nuclear Winter Maybe). The government is going to ensure a constant supply of Crude Oil at stable rates.
2) Dollar Demand- Supply
Feds have printed a huge huge huge amount of dollars to recover from the Covid Market crash(If there are $100 in the market, $35 were printed in the pandemic).
Liquidity is at its peak and this is leading to inflation.
In a nutshell, If more money is printed less valuable it becomes. Inflation is nothing but the measure of how quickly our money becomes less valuable. In even a smaller nutshell, the U.S.A. is in a very tight position. Any spending or non-prudential step is going to push them into recession. (According to technical analysis SPX has breached its 200MA, which is taken as a signal for correction). Markets are merciful for now. But, If the United States plans to step into this Ignorable issue then we’re sure in for a very deep fall. They cannot print any more money because they are already near their debt ceiling.
3) Market Sentiments
Global Market sentiments have turned bearish and even countries which are miles away (Literally) from this war are paying the price for it.
4) FII Sentiments
FII’s were already net sellers in the Indian markets for more than a year. This war can however change this and make India a perfect place to park/ invest its funds. This is due to India’s diplomacy and neutral stance on the Issue.
5) Country’s Risk Premium
It is a complicated high-level concept with a fancy formula.
To simplify it. Country Risk Premium (CRP) is the additional return or premium demanded by investors to compensate them for the higher risk associated with investing in a foreign country, compared with investing in the domestic market. Right now the risk premium is rising which makes investing for the long term a lucrative option.
6) The demand for Safe Havens
People flock to asset classes like Gold and Silver during hard times which raises their demand and makes their price rise.
In peaceful normal times, the Correlation between gold and equity is zero. However, During wars and periods of FUD (Fear, Uncertainty & Doubt), Gold and equity become negatively correlated.
7) Liquidity Positions
Uncertain times leave no asset class immune to sudden falls or stagnation. So keeping cash would’ve been a smart option if Feds wouldn’t have printed so much money. Inflation is going to be the devil to your savings (Market sentiments can act and corrode your liquid wealth as well Eg. Ruble)
I personally don’t understand Sanctions. Earlier countries used to threaten that if you don’t trade with us we’ll bomb you (Opium war, American pressure on Japan post WW2).
Now it’s you bombed XYZ so we are not going to trade with you.
Does this make sense?
Trying to damage another country by damaging your own interests as well?
I believe sanctioning only makes domestic industries stronger and sends the message to reduce global dependency.
The West is firing on its own foot right now by putting up sanctions against Russia or any involved country.
What can be done now?
Nifty has broken its 200MA which is taken as a correction signal. Till the time nifty crosses its 200MA with a decisive green candle my view on it is bearish.
Support appears at 16000 according to Fibonacci levels.
I would like to stay away from overnight trades because of crazy gap-up/ gap-down openings.
Due to the high India VIX (Volatility Index), I feel more comfortable selling options rather than buying them.
Bear Call spreads work in markets entering a correction with more accuracy than normal markets.
Accumulation of value stocks with low or zero debt can be done. This is what I am doing personally.
I cannot believe that I am saying this but, FD sounds like a good option right now for the medium term for risk-averse investors.
Who knows what’s going to happen but I am patiently waiting for this war to get over so that I can ride the post-war rally.