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Equity markets tend to bounce back after war-like situations

Market experts are of the view that after a sharp fall, a strong rally can be expected in economies like India where fundamentals remain strong, despite some macroeconomic challenges emanating from higher energy costs.

Explains Deepak Jasani, head of retail research, HDFC Securities, “In any long-drawn event, sell-offs are followed by bounces and again more sell-offs and so on. So if one takes the final date, markets would seem to have made a bottom on that date.”
Explains Deepak Jasani, head of retail research, HDFC Securities, “In any long-drawn event, sell-offs are followed by bounces and again more sell-offs and so on. So if one takes the final date, markets would seem to have made a bottom on that date.”

By Ruchit Purohit

Equity markets tend to pull back firmly after war-like situations. This prognosis has been tested several times over the years, be it after the Gulf War, Afghanistan War, Iraq War or the Crimean crisis.

Market experts are of the view that after a sharp fall, a strong rally can be expected in economies like India where fundamentals remain strong, despite some macroeconomic challenges emanating from higher energy costs.

According to KR Choksey, headline indices and top tier companies with strong fundamentals are quick to recover after a precipitous fall, especially due to war-like scenarios and they generate outsized returns for investors.

Explains Deepak Jasani, head of retail research, HDFC Securities, “In any long-drawn event, sell-offs are followed by bounces and again more sell-offs and so on. So if one takes the final date, markets would seem to have made a bottom on that date.”

However, the formation of a bottom takes longer in case events exacerbate an already fragile economic/financial global environment. In the past, the Nifty-50 has usually corrected between 31% and 37% after a bull run, and later staged a strong rally again of up to 145%. However, currently, the index has rallied 148% and has corrected only 12.7% from its peak in October.

“While rising crude prices and worries of inflation will lead to volatile sessions until the dust settles, we only see further investment opportunity in such conditions and make use of the same. We recommend investors to ignore the noise and stay put with their current investments,” says KRChoksey PMS in a note.

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