Markets are trading higher as the start of the war in Ukraine – Allowing consolidation to happen

By Arun Kejriwal

The past week has been a short week with only four trading sessions. Markets saw gains in three out of four trading sessions and gained significantly. BSESENSEX rose 2,313.60 points or 4.16% to close at 57,863.93 points while NIFTY gained 656.60 points or 3.95% to close at 17,287.05 points. The broader indices saw BSE100, BSE200 and BSE500 gain 3.78%, 3.56% and 3.41% respectively. BSEMIDCAP gained 2.21%, while BSESMALLCAP rose 2.08%.

The Indian rupee gained 79 paisa or 1.03% to close at Rs 75.80 per US dollar. The Dow Jones performed strongly and rose 1,810.74 points or 5.50% to close at 34,754.93 points.

The Russian-Ukrainian war will end a month in three days. The attack began on February 24. The level of BSESENSEX and NIFTY on February 23 was at 57,232.06 points and 17,063.25 points. The low was reached on March 8 at 52,260.82 points and 15,671.45 points. Thursday’s closing levels were 57,863.93 points and 17,287.05 points respectively. The effect of the war on Indian markets lasted only seven days, with the bottom being set on the eighth trading day (March 8). Thereafter, in another seven days, the markets rose above the levels from which they had begun to fall. At the weekly close, we are up around 650 points on BSESENSEX and around 220 points on NIFTY.

No effect from supply constraints, disruptions, soaring commodity prices, edible crude oil, crude oil prices, which are now down. Sanctions imposed on Russia and those who trade with it. Looking at the markets in their current state, it seems that there was no war.

The US Federal Reserve raised interest rates for the first time since 2018 and kept them between 0.25% and 0.50%. The tone of the press conference was extremely hawkish and experts believe that going forward, we will see 4-5 rate hikes over the next 12 months or sooner. The US government is worried about inflation, which has reached its highest level in 42 years since 1980.

Russia alleges that the United States funded the establishment and operation of biological warfare laboratories in Ukraine, which has become a matter of grave concern. As the aggression, bombing and encirclement of key cities in Ukraine continues, talks are also being considered with little or no result. No one knows when the two parties will find a solution.

In economic news in India, gross tax revenue for the current financial year was extremely robust at Rs 13.63 lakh crore against 9.18 lakh crore in the previous year at the same period. A buoyant stock market also helped matters and the collections on the STT front are an indication of this where the revised estimate that was raised was also breached.

Ruchi Soya’s follow-on public offering of Rs 4,300 crore would open on March 24 and close on March 28. The price range announced on the stock market today is very attractive Rs 615-650. Looking at the March 17 closing price of Rs 1,004.45, the discount is around 35% at the high end. Even considering the price going a week ago when the show dates were announced of Rs 804, the discount at the top end is more than a decent 20%. Very clearly, the intention of the company is to make a good deal for the new investors who would become part of the company after this follow-up offer.

Indian oil companies have been buying Russian crude at very favorable prices and the overall share of Russian crude in the oil basket has increased significantly. With the lifting of sanctions against Iran, Iran has offered to supply crude to India also reviving the Rupee-Rial trade. These two steps would help reduce pressure on the Indian government due to rising crude prices.

Geopolitical tensions will continue to dominate global markets in the weeks ahead. The fact that the war losses have been erased from the Indian markets and also from the US markets, it is time to look at the risk-reward profile from now on. All risks are gone with respect to the market level or stock price. What remains are headwinds on all those fronts. The impact of the war is unknown because there seems to be no time frame in which this could be resolved. The impact of rising interest rates in the United States must be understood by the markets and digested. The companies’ results are only a fortnight away and it would be interesting to see how the companies fared.

Coming to the markets in the coming week, it looks like the impact of the war has kicked in and more than neutralized in just 7+7 trading days. In 15 days, it’s over as if Russia-Ukraine had never happened. The ability to time the dip and the strong rally also made itself felt. In the future, it would be as if nothing had happened. The strategy would be to sell on any rally and wait for significant corrections before re-entering the markets. The chances of strong upsides would also diminish from now on as we enter the phase where markets are looking for consolidation more than anything else. A safe strategy would be to limit yourself to the large cap space only. Trade cautiously and let the markets consolidate.

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