Volatility Likely To Continue; Presenting Accumulation Window For Long Term Investor
It was a topsy turvy week for Indian equities as Putin’s decision to invade Ukraine sent crude prices rocketing past the $ 100/bbl mark, stoking fresh fears around inflation in what has already been the most sustained accommodative phase in terms of interest rates, post the 2020 COVID debacle.
Markets smartly recouped their losses on Friday, with the bellwether index recovering by more than 400 points or 2.53%, indicating that traders are unafraid to carry their long positions into the weekend despite the global turmoil that’s raging. The sharp bounce back when the index dipped below the lower Bollinger Band on Thursday indicates that the bulls are still very much in the game.
At current market levels, the NIFTY is down nearly 2,000 points from it’s heady and unsustainable heights of last year. The current P/E ratio of the bellwether index is now at a very respectable 21-22X, nearly 50% lower it was a year back!
While we may well have more pain in store as the current geopolitical event plays out, history tells us that rarely has any geopolitical event had any long-term bearing on domestic stock prices; in fact, we’ve often seen very swift recoveries once the dust has settled.
With the multitude of push and pull forces in play, we are likely to continue seeing a fair bit of drama as the current situation plays out over the next few sessions. Short term trading remains fraught with danger and is ill advised.
The near-term prognosis does remain range bound; however, with earnings growth looking up and much of the froth having been shaved off, this does seem like a great window of opportunity for long term investors to systematically accumulate and start increasing risk in their portfolios with a minimum time horizon of 3-5 years.
The volatility can be played to one’s advantage by remaining dispassionate and accumulating fixed amounts of target stocks or funds at regular intervals. Discipline - and a cool head will be key!
DISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. If you do not fully understand these risks, you must seek independent advice from your financial advisor. All trading strategies are used at your own risk.
