Stick to large-cap stocks amid volatility

Markets have been under extreme volatility ever since Russia attacked Ukraine early morning on February 24. The period under review from 24th February to 2nd March, saw markets lose on two days and gain on two days. BSE Sensex lost 1,763.16 points or 3.18 per cent to close at 55,468.90 points, while Nifty lost 457.30 points or 2.75 per cent to close at 16,605.95 points. The volatility during these four days needs to be understood better to get a clearer picture of the numbers.

Coming to the markets, we lost a massive 2,703 points on the BSE Sensex on Thursday when hostilities broke out. Similar loss on Nifty was 816 points. The next day on Friday approximately half was regained with BSE Sensex gaining 1,328 points and Nifty 410 points. Monday saw markets opening in the red. The intraday movement saw BSE Sensex go down from 55,329 points to 54,833 points. The high was 56,324 points and the close was 56,247 points. Net change was 389 points on the positive side while intraday swing was 1,491 points. On Wednesday, the swing was 1,247 points while the net change was negative 778 points. During the sharp fall on Thursday, markets broke the lows made on 20th December. This low was 55,132.68 and 16,410 points respectively. The new lows made on Thursday the 24th of February were 54,383.20 points and 16203.25 points. The last low lasted for a little over two months and was followed by a vicious uptrend which saw BSE Sensex gain over 6,000 points in just under a month. Whether something like this will happen yet again is difficult to predict and looks unlikely as of now.

Dow Jones in the last five days has lost 302 points or 0.90 per cent to close at 33,294.95 points. In economic news, GST collected during February 2022 was Rs1.33 lakh crore. The government is in talks to consider the upcoming mega IPO from LIC slated for this month. There is talk of delaying the launch considering the global scenario post the outbreak of transgression. Clarity on this would emerge in the next two days or so.

Post aggression, economic sanctions of all kinds have been imposed on Russia. The immediate fallout is the sharp rise in prices of crude oil and natural gas. While crude oil is closer to the $110 mark, gas in Europe was $1,900 for 1,000 cubic mts.

There has been one round of talks between Russia and Ukraine which was held without any outcome. The second round of talks has been slated for Wednesday (March 2). Whether it leads to any outcome is most uncertain.

While currently no sanctions have been imposed on crude oil and gas, a large number of restrictions have been put on Russia and its central banks and largest banks. This will affect movement of goods globally. While India would be able to continue to trade under the bilateral trade regime which uses the Indian Rupee with Russia, it will have repercussions sooner than later.

Assuming the issue does not get resolved in the next few days, the situation will harden on both sides. Ukraine exports sunflower oil, inorganic chemicals, iron and steel and plastics to India. To the world it exports corn, wheat, seed oil, iron ore and semi-finished iron. Russia would ensure that movement of goods from Ukraine's ports are affected. The crux of the dispute is to ensure that Ukraine does not become a member of NATO, and thus NATO does not have access to Russian borders.

February futures were badly hit as the skirmish between Russia and Ukraine happened on Thursday, an expiry session for derivatives. February futures lost 862.20 points or 5.04 per cent to close at 16,247.95 points. Nifty lost 816 points on Nifty on Thursday, which effectively means that the series was down by a mere 46 points prior to expiry day.

Coming to the markets in the March 3-10 period, exit poll for the elections in five States would be available on the evening of Monday (March 7). Actual results would be available on March 10. If the exit polls indicate the results to be in favour of the government of the day, there could be upside the next day. On confirmation of the results on counting day, the markets could see further gains.

With markets in a choppy and volatile condition largely driven by global factors, it makes sense to trade ultra-cautiously and only in the large-cap stocks. As of today, with a reasonable amount of surety, I believe that the Nifty is unlikely to go below 16,000 points and BSE Sensex below 53,750 points. There is greater safety in such stocks and they are comparatively less volatile as well. Let's hope that by the time the next article is written we have finality on this transgression.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)