Market Strategy: Buy on a dip or sell on a rally?

Monday’s bloodbath on Dalal Street left investors poorer by nearly six trillion rupees, as a spike in oil prices shook investor confidence.

An unexpected call by US president Joe Biden to ban oil imports from Russia, coupled with delays in the potential return of Iranian crude to global markets, fuelled tight supply fears.

Crude oil prices touched their highest since 2008, while rupee touched historic low of 77 per dollar-mark as war in Ukraine threatened to inflate India’s oil-import bill and fan inflationary pressures.
 
Equities, too, came down crashing with the benchmark S&P BSE Sensex and the Nifty50 sinking 2.7% and 2.3%, respectively, yesterday. They hit their lowest levels in eight months.

The two indices have corrected 15% from their lifetime highs of 62,245 and 18,604 claimed in October last year.

According to analysts, India faces meaningful risks in terms of higher inflation, lower corporate earnings, trade shock and current-account deficit implications.

This is because India imports nearly three-fourth of its oil, making it one of the most vulnerable in Asia to higher prices.
 
Estimates suggest the Indian economy could incur an additional 70 billion-dollar burden, or 1.9% of GDP, at an average crude price of 120 dollar per barrel.
 
Analysts at Bank of America believe if most of Russia’s oil exports are cut off, there could be five million barrel or larger shortfall globally.

That means oil prices could double from $100 to $200 a barrel. JP Morgan analysts, meanwhile, expect oil to soar to $185 per barrel this year. 
 
A marginally conservative estimate by Rahul Kalantri, who is vice-president for commodities at Mehta Equities, suggests that WTI prices could test 140 dollar per barrel and Brent prices could reach 134 dollar a barrel going ahead. Technically, crude oil has support at 118–110.40 dollars and resistance is at 129–140 dollars.

Given these headwinds, we have Alphaniti Fintech co-founder, U R Bhat, with us, to understand the road ahead for the markets.

Meanwhile, tech charts, too, suggest more downside for the markets. 

On Tuesday, the markets will continue to monitor global developments besides taking guard for the outcome of assembly poll results across five key states – Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur.