How should retail investors ride Russia-Ukraine crisis?

The simmering tensions between Russia and Ukraine have kept global equities under pressure for days now.

Sliding for the fifth consecutive day, the BSE Sensex dropped 383 points while the Nifty50 fell 114 points to settle the day at 58,300 and 17,092 yesterday.

Earlier in the day, both these indices had cracked around 1,300 point and 400 points, respectively, in intra-day trade. 

The developments in Easter Europe roiled global markets as investors monitored the implications of potential sanctions against Russia, and the latter’s counter-move, if any.

Back home, investors have lost a chunk of their wealth as the benchmarks have skid around 1.5% so far this year. 

The broader MidCap and SmallCap indices, meanwhile, have dropped up to 13% during this period.

Given this, Dhananjay Sinha, managing director and chief strategist at JM Financial Institutional Securities, says retail investors should remain cautious and look at quality large-caps for now. Ambareesh Baliga, who is an independent market analyst, too, says retail investors should use any bounce back to get back into cash.

That said, from a year-long perspective, Sinha says the year 2022 could be a year of flattish returns with downwards risks weighing more. And he may not be the only one with this view.

Multiple headwinds in the form of Russia-Ukraine crisis, Brent crude oil price at $99 a barrel, prospects of faster-than-expected hike in rates by the global central banks and its impact on bond yields, impending state elections in India, and the fears of a rise in inflation has seen foreign brokerages recalibrate their return expectation from the markets in 2022.

Thus, Jefferies has cut its December 2022 target for the Nifty50 to 17,500, which is around 3.5% higher from current levels.

Its 10 mean reversion scenarios put the Nifty50 December 2022 in the range of 16,500-18,500 amid near-term risks including threat to liquidity due to LIC IPO, continued foreign selling, and a perception that the RBI might be behind the curve amidst the twin deficit concerns.

BofA Securities, too, has cut its December-2022 Nifty target to 17,000 from 19,100 earlier. Thus, calendar year 2022 may give tepid returns to investors after two consecutive years of double-digit gains as outlook for the markets remains indefinite.