Nifty down 10% from highs! Time to follow Warren Buffett’s teaching- ‘be greedy when others are fearful’?

No, it is not COVID, but an outbreak of a war between Russia and Ukraine as well as heightened expectations of tighter monetary policies by central bankers across the globe which led to a steep double-digit fall in equities across the globe and India is not immune to the selloff.

Warren Buffett once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”

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The Nifty50 is down over 10 per cent from the recent high of 18,604 recorded in October 2021 largely weighed down by external events such as the outbreak of war, rise in interest rates globally as well as a spike in crude oil which will fuel inflation.  

The next big question in front of investors is – is this a time to become greedy? Well, experts are not denying the possibility of long-term wealth creation if somebody plans to invest fresh capital.

Good businesses, as well as quality stocks in large-mid and smallcap space, can be looked at. Traders should avoid leverage bets and investors should book profits or cut positions in stocks that lack earnings visibility as volatility is here to stay.

“The current market fall has the markings of a black swan event. The attack came as a surprise to the market which is apparent from the reaction. But is this the time to be greedy when everyone else is fearful -- Warren Buffett's teachings?,” Vikas Singhania, CEO, TradeSmart, said.

“It is definitely the time to run our scanner and look for stocks where the intrinsic value is lower than the market price. The search is to be restricted to frontline stocks as they tend to recover faster,” he added.

One does not know how long this event may last and whether it will spread to other regions. Singhania added that it is thus better to play safe and nibble in stocks where valuations are compelling.

March 2020 was also a month when fear ruled equity markets, and we are in a similar situation in February 2022 – amid a rise in geopolitical concerns which pushed Crude above $100, and triggered risk-off sentiment.  

The last time we saw a double-digit fall in benchmark indices was back in March 2020 and since then we have more than doubled and many stocks have already given multibagger returns.

Amid rising geopolitical concerns which is here to stay India Inc.'s performance in the December quarter was strong. Nifty constituents saw more beats than misses which is a good sign.

If things stabalise in the near future earnings will drive re-rating, but the short-term threat would be a rise in raw material costs as inflation is likely to spike.

“Geopolitical events often come up with short-term reactions in the market as the dominant news flow leads to market volatility. The current Russia-Ukraine crisis would lead to a rise in oil prices, higher than the current levels,” Naveen Kulkarni, Chief Investment Officer, Axis Securities, said.

“High crude prices could delay the cool-off in inflation, which was expected to go moderate by the second half of 2022. We believe the present macroeconomic developments are leading to volatility in all major asset classes, including equity and debt,” he said.

The volatility is here to stay for some time before we conclude a market direction. “Investors should focus on asset allocation and use this volatility to build long-term positions in quality large and mid-cap stocks as they become attractive after the recent correction and provide a good entry point,” added Kulkarni.

Selloff by FIIs to continue:

Foreign investors have pulled out more than Rs 40,000 cr from the cash segment of the Indian equity markets so far in February – 5 straight months of the selloff.

Experts feel that the selloff is likely to continue in near future amid rise in geopolitical concerns. Geopolitical tension of such a magnitude doesn’t augur well for emerging markets like India with respect to foreign flows, they say.

FII flows into Indian equity markets have not been encouraging for a long time now.  From November 22, 2021, till Feb 23, 2022, FIIs are net sellers in the Indian equity markets to the tune of USD 12.93 billion.

This year so far, FIIs have sold net assets worth USD 7.72 billon in the Indian equity markets. “In addition to fears of rise in US interest rates, brewing tension between Russia and Ukraine, and with fears of war between the two countries looming large, foreign investors adopted a cautious approach and started to stay away from investing in emerging markets like India,” Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said.

“In fact, as Indian markets continued to trade at elevated levels despite intermittent corrections, they chose to book profit and probably opt for safer investment options, such as safe havens like gold,” he said.

Srivastava further added that emerging markets like India are considered to be riskier investment destinations and more prone to geopolitical turmoil compared to developed markets -- usually under such scenarios, FIIs tend to drift away from these markets and move towards investment avenues offering greater safety. I believe that’s going to be the case this time as well.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)