Stock markets globally are going through unprecedented volatility amid the Russia-Ukraine crisis and the Indian market is no exception.
According to a recent report by the brokerage house Motilal Oswal, the Russia-Ukraine conflict has resulted in a global risk-off, with equity markets undergoing intermittent bouts of correction and elevated volatility. The uncertainty over the duration and magnitude of the extant conflict could keep the market jittery and dependent on news flow.
From India’s viewpoint, it noted that a sharp spike in crude oil prices poses key risks on the external balance front and can play a spoilsport with the assumptions made in the FY23 Union Budget.
While these are early days into the conflict, higher crude oil prices, if sustained for an elevated duration, can result in higher inflation, current account deficit, bond yields, and interest rates in India and thus impact macro-economic stability, it added.
The brokerage house also highlighted that FIIs continue to remain net sellers in India as the global risk-off sentiment and the geopolitical situation have added to concerns of inflation, higher bond yields, and global rate hikes.
Post the recent correction, the Nifty is now trading at 19x 12-months forward P/E, which is slightly lower than its 10-year average for the first time since November 2020.
The brokerage firm is of the opinion that healthy earnings visibility can act as a cushion in an otherwise fragile external situation. If the Russia-Ukraine conflict elongates and leads to elevated energy prices for longer, it may impact earnings estimates.
"However, close to two-thirds of Nifty earnings are insulated/benefits from elevated energy prices (IT, BFSI, Metals, O&G), while one-third is adversely impacted (Consumer, Auto, Cement, Pharma, and Telecom). Our portfolio construction is premised on stocks where the earnings visibility remains solid, pricing power is healthy, and the recent correction has led to moderation in valuation. We continue to remain biased towards large-caps," added Motilal Oswal.
HDFC, SBI, Wipro, HCL Tech, L&T, Tata Motors, HDFC Life, Dabur India, Godrej Consumer, Apollo Hospitals, Gland Pharma and Macrotech Developers are among the preferred large-cap firms which have corrected at least 10-20 per cent from the 52-week highs.
Meanwhile, the benchmark indices were trading sharply lower on Wednesday as the Russia-Ukraine crisis stirred anxiety among investors on Dalal Street.
Equity benchmark Sensex crashed over 1100 points to hit an intraday low of 55,103.98 and Nifty also plunged over 280 points.
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today