A spike in crude oil prices due to tensions between the US and Iran, as well as unrest in the Middle East, has put pressure on the Nifty 50 and Sensex recently. The domestic benchmark indices have declined by nearly 7% over the past month. Market analysts suggest that the extreme volatility in crude prices have led to heightened instability in stock markets worldwide.
The sudden spike in crude prices, which drove Brent crude close to $120 yesterday (March 9), saw a significant drop this morning (March), with Brent crude falling to $89. Such a drastic shift of nearly $30 in a single day demonstrates the considerable uncertainty regarding the implications of the conflict in West Asia on global crude supply, according to experts.
The recent drop in crude oil prices has given some respite to the markets, leading to positive movements in both Nifty 50 and Sensex today.
However, analysts believe that unforeseen events can once again affect crude oil prices and, consequently, the stock markets.
The ongoing uncertainty related to the Middle East situation, a consistent drop in the market, the Indian economy’s sensitivity to a sudden rise in crude prices, and the steep fall of the rupee have all contributed to the continued selling by Foreign Institutional Investors (FIIs) in the cash market, and Foreign Portfolio Investors (FPIs) exiting.
The net purchasing by FPIs, amounting to ₹22,615 crores in February, has turned around due to the conflict in the Middle East. So far in March, FPIs have sold equities worth ₹27,349 crores.
Experts suggest that FPIs are unlikely to re-enter the market as buyers until there is clearer insight regarding the outcome of the conflict and a decrease in oil prices.
What should investors do?
In this unpredictable environment, a question emerges regarding the best course of action for investors. Should they maintain their investments, withdraw, or navigate according to market trends? Let’s explore the opinions of experts.
Dr. VK Vijayakumar, the Chief Investment Strategist at Geojit Investments Ltd, stated that the historical lesson indicates that geopolitical matters such as wars typically affect the economy and markets only in the short term. Consequently, investors ought to maintain their investments and persist with systematic investing. Additionally, a common insight from experts is that crises present buying opportunities for investors who are not averse to risk.
“The correction in the market has made stock prices, particularly of largecaps, fair. Sectors like financials, automobiles, pharmaceuticals and defence have good prospects,” advised Vijayakumar.
Similarly, Khushi Mistry, Research Analyst at Bonanza also highlighted pharmaceuticals sector to remain resilient because healthcare demand is largely non-cyclical. Medicines and healthcare products are essential, meaning consumption does not decline significantly even during economic or geopolitical disruptions. Another key defensive space according to Mistry during geopolitical tensions is the defence sector.
Further, Sunny Agrawal – Head of Fundamental Research at SBI Securities, believes following the recent market correction, several sectors are showing value-buying opportunities. Key sectors include Automobiles and Auto Ancillaries, Banking, Asset Management Companies (AMCs), NBFCs, Structural Steel, and Power and Power Ancillaries.
“At the stock level, companies with strong fundamentals and growth potential stand out. These include M&M, ICICI Bank, Union Bank, Shriram Finance, L&T, BEL, Varun Beverages, APL Apollo, NAM India, and NALCO.
Investors should focus on businesses with resilient balance sheets, consistent earnings, and the ability to capitalize on long-term growth trends, while keeping an eye on valuation levels post-correction,” opined Agrawal recommending some stocks.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
