How To Hedge Against Market Decline Due To Geopolitical Factors
When Indian markets decline for reasons not directly linked to the country, like conflict, it presents a buying opportunity, said Gurmeet Chadha.
The current decline in Indian equities, triggered by the global shake-up caused by geopolitical tensions in the Middle East, presents domestic investors with a good buying opportunity, according to market analysts. Sentiment has been in the negative zone globally as regional tensions have flared up between Iran and Israel, leading to investor flight from equities to safer alternatives like bonds and gold.
"It's a buy-on-dips market that happens in a bull phase. All macro indicators are solid," said Gurmeet Chadha, managing partner and chief investing officer at Complete Circle Wealth Solutions LLP. "Sometimes it's better to wait out the geopolitical uncertainties."
Markets will give some indication in the form of downward pressure on the yields on the 10-year bonds and on gold prices as to whether to add more positions in the decline, he said.
When Indian markets decline for reasons not directly linked to the country, like the Russia-Ukraine war and the Gaza conflict, historically, it presents a buying opportunity, Chadha said.
What's the biggest hedge against such declines? "Invest in a portfolio that has earnings growth and stocks with good momentum," Chadha said.
India's benchmark stock indices erased intraday gains to extend their losing streak to the fourth session on Thursday, as Axis Bank Ltd., ICICI Bank Ltd. and HDFC Bank Ltd. dragged.
The benchmarks have now recorded the longest losing streak since Oct. 26. The NSE Nifty 50 closed 152.05 points, or 0.69%, lower at 21,995.85 and the S&P BSE Sensex ended 454.69 points, or 0.62%, lower at 72,488.99.
Technical side analysis of derivatives build-up in the last few days suggests negative sentiment, giving levels that are buying opportunities to accumulate stocks in the commodities, metals and sugar space, said Aditya Arora, multi-asset research analyst and founder of Adlytick.
"Index level, there has to be wait and watch. Once the Nifty breaches 22,500, then I will be very positive... Markets are volatile and would like to go with defensive counters, which are not very sensitive," he said.
Bank Nifty can look for an upside of 47,500 to 47,900 with a stop loss of 46,800, Arora said.
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