Opportunity in crisis! Use this market crash to lap up quality stocks

Markets globally witnessed carnage this week owing to the war-like situation and geopolitical tensions between Russia and Ukraine. Our frontline indices not being immune to these global jitters faced a similar atrocity. This led to a 3.58% decline for the week and as fears intensified, India VIX touched its highest level since June 2020.

While currently, all seems gloomy, one silver lining that can be looked at as results season bids adieu is Nifty’s earnings performance for the latest quarter.

Earnings, which help gauge the strength of the market, continued to be robust and constituents of Nifty witnessed more beats than misses. The topline as well as bottomline of Nifty constituents grew at strong double-digit rates on a YoY basis and at healthy rates sequentially.

On the sectoral front, capital goods, banks, power, IT, metals performed reasonably well although auto, pharma and cement witnessed a difficult quarter. The pain point for many industries was high inflation which resulted in a narrowing of margins.

Going forward, given the current spike in commodity and crude prices due to the geopolitical situation, inflation can elevate further. This certainly poses a short term challenge for companies and can delay the recovery in the economy. However, considering that the corporate earnings have remained resilient, commentary across sectors was largely optimistic, India has multiple structural tailwinds playing out. And this meltdown in our markets seems rather transitory.

While such corrections do instil panic, they also give a buying opportunity for long term investors. This echo is also supported by the actions of DIIs, who have absorbed all of the selling undertaken by FIIs from Monday to Thursday this week. Investors are therefore advised to find the calm amid this storm and build up long-term positions in quality companies in a staggered manner.

Events of the week
Equities witnessed extreme volatility and commodities aren’t far behind.

This week multiple commodity prices soared to the stratosphere due to the sanctions being imposed on Russia. For instance, Brent crude touched $100/barrel for the first time since 2014 driven by fears of tight supplies and increasing demand. Further, as Russia produces ~6% of the world’s aluminum and 7% of the world’s mined nickel, signs of already existing bottlenecks worsening catapulted their prices. Aluminum prices rose to all-time highs while those of Nickel are close to decade highs now. Moreover, as investors sought safe havens to protect their capital, gold prices escalated to 13-month highs.

As these price spikes remain a short term overhang, it is vital to be watchful of companies that are directly impacted in order to decide on investment actions. However, as global uncertainty eases, these stretched prices are likely to mellow down.

Technical outlook
Nifty50 index closed on a strongly negative note for the week breaking below the crucial support zone around 16,800 levels. Albeit the sharp rebound seen on Friday, the index failed to recoup all the losses. Also, there has been structural damage to the ongoing major trend due to which this recovery seems less sustainable. The bounce, hence, can be a good exit opportunity for short-term traders. Until Nifty breaks above 17,500 levels, we suggest traders maintain a bearish outlook. Immediate support and resistance are now placed at 16,200 and 16,900 levels.


Expectations or the week
Prevailing geopolitical tension would continue to take the center stage and will be the major force guiding the direction of the market and sentiment of the investors globally. If a war-like situation between Russia and Ukraine persists, markets may dive deeper into the red sea.

So, D-Street will be influenced by an eventful domestic economic calendar as quarterly GDP numbers, auto sales numbers and manufacturing PMI figures are expected in the coming week. Given multiple trigger points and the increasing uncertainty, investors are advised to tread with extreme caution and avoid any aggressive bets.

Nifty50 closed the week at 16,658.40, down by 3.58%.


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