Investing during panic has been rewarding historically, says ICICI Direct

Geopolitical tensions between the US and Iran have rattled global equity markets, triggering a sharp sell-off and a surge in crude oil prices, posing a direct risk to India, which imports over 85 per cent of its oil needs. However, history suggests that such events offer attractive buying opportunities for long-term investors, said brokerage firm ICICI Direct.

The Indian equity markets have already felt the impact of the Middle East conflict, with headline indices falling around 4 per cent in just two days. Separately, crude oil prices have increased by more than 15 per cent since the start of the crisis as fears of supply disruptions have grown.

 

The key questions that will keep volatility elevated are how long the conflict will continue.

Despite the near-term volatility, ICICI Direct said that markets have historically bounced back after geopolitical shocks. The brokerage provided an analysis of six major geopolitical events since 1990, showing that markets typically correct for about four weeks before staging a recovery. On average, the Sensex delivered a return of about 28 to 38 per cent over a period of three to six months (returns calculated from the lows seen during such events).

"We believe geopolitical events like the current one provide stupendous buying opportunities from a 2–3-year perspective," the brokerage said while recommending a staggered investment approach to "counter any incremental volatility".

From an earnings and valuation perspective, the brokerage expects India Inc to deliver 10-15 per cent PAT CAGR over FY25-FY28E, factoring in the possibility of elevated crude prices.

In the given scenario, the brokerage has recommended investors to focus on domestic-oriented sectors that are less exposed to global disruptions. These include banking, infrastructure/ capital goods/ cement, auto (OEM and ancillaries with the least export share), real estate, and consumption (discretionary). 

   Six major geopolitical events since 1990

Iraq war (2nd August, 1990): The Sensex corrected about 14 per cent, and the correction lasted for nearly 36 weeks. The rebound was equally strong as the index zoomed 26 per cent within one month, 39 per cent in three months, and 65 per cent in six months from the correction low.

Kargil war (3rd May, 1999): During the Kargil war, the Sensex declined around 11 per cent, with the downtrend lasting for six weeks. From the lowest level of the correction, the market recovered 17 per cent in one month, 33 per cent in three months, and 40 per cent in six months.

World Trade Center (11th September, 2001): After the 9/11 attacks in the US, the Sensex fell about 18 per cent within two weeks. However, the market recovered quickly as the index recouped the losses within a month and continued to move higher. From the correction low, the Sensex rose 35 per cent in three months and 45 per cent in six months.

ICICI Direct on market bottom

26/11 Mumbai attacks (26th November, 2008): Following the terrorist attacks in Mumbai, the Sensex declined 3 per cent in the next week. However, the recovery was nothing less than remarkable, reflecting strong investor confidence. From the correction low, the Sensex surged 20 per cent within a month, gained 24 per cent in three months, and climbed 36 per cent in six months.

Pulwama attack (14th February, 2019): After the terrorist attack on a CRPF convoy in Jammu and Kashmir, the Sensex slipped about 2 per cent within a week. However, recovery was swift as Sensex gained around 9 per cent from the correction low in the one month. The index rose 12 per cent in three months and 14 per cent in six months.

Russia-Ukraine war (24th February, 2024): Following Russia’s invasion of Ukraine, the Sensex declined about 11 per cent over a period of 23 weeks. From the low, the market rose about 7 per cent in one month, climbed 19 per cent in three months, and gained 25 per cent in six months.

Top picks by ICICI Direct: L&T, Elgi Equipment, City Union Bank, Nippon Asset Management, Start Cement, Chalet Hotels, NRB Bearings, Asian Paints and Indo Count. 

 

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