Russia’s aggression in Ukraine has cost investors dearly and there is some more pain in store, market experts believe. But there is some good news as well: an FE poll of market strategists and experts shows that the losses may be more than recouped by the end of the year.
Even though markets have come off 12.5% from their highs in January, experts believe markets could well end the year 21.8% higher from current levels. A majority of market experts expect Nifty50 to end the calendar year between 18,000 and 20,000 points. The Nifty50 has corrected 6.2% since the Ukraine crisis, wiping out investor wealth to the tune of Rs 12.1 lakh crore.
More than 50% of the experts polled said that investors should sit on cash and start accumulating when Nifty hits 15,000. Aishvarya Dadheech, fund manager, Ambit Asset Management, said “investors should capitalise on the opportunity by investing in the market at lower levels in a calibrated fashion. Nifty 50 is now trading below 18 times P/E FY23”.
The market is basically factoring major parts of the perceived risk of rising inflation, interest rate hike, impending slowdown and moderation in earnings growth.
Many quality businesses are now available at favourable risk-reward, and long term investors should capitalise on it, Dadheech said.
The markets will not only have to contend with geopolitical risks at play, but also rising inflation and reversal of a cheap money era. Most experts polled said that investors should temper their return expectations from the markets. Pankaj Pandey, head – research, ICICIdirect, said: “On account of domestic and global inflationary pressures, we expect interest rates to go up, which in turn will increase the cost of liquidity. A decline in the size of liquidity has already led to volatility in stock markets. We are of the view that investors need to temper their return expectations.”
Sustained inflationary pressures have been hurting earnings of corporate India even during the pandemic. The sharp spike in oil prices will further impact earnings in FY23. While earnings cuts have not yet begun, the poll suggests that earnings estimates for next fiscal will be adjusted to factor in current turmoil. Nilesh Shah, MD of Kotak Mahindra Asset Management, said: “We estimate that there will be downward revision in earnings for FY22 as well as FY23 due to current high commodity prices. Rising crude prices will have an adverse impact on corporate earnings depending upon how high they go up and how long they stay there.”
A majority of experts didn’t want to hazard a guess on how long the current crisis would last. However, they said the impact of the war on other economies across the world would last anywhere between 6-12 months. “The war would end soon, but the after effects of war would continue to harm Russia as well as other dependable economies,” Rakeshh Mehta, chairman, Mehta Equities-Mehta Group, said.