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Market Resilient Through Geopolitical Crisis: Confirms History

08 August 20224 mins read by Angel One
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The years 2020 and 2021 have been unprecedented for the global economy. COVID impacted almost all countries, causing widespread disruption in the world supply chain and production. The Indian economy has shown resilience under the crisis and registered growth in several areas. However, FY23 has brought the investors to a crossroad. While the domestic economy continues to build up, the global conditions turned turbulent cause of the war situation in Russia and Ukraine, hawkish Fed policies, and sky-rocketing crude oil and commodity prices.

There is no denying that global metrics significantly impact the Indian economy. So, we must understand how the current situation will affect the growth of our investment. Looking at the historical evidence will clarify the situation and put investors’ anxiety at rest.

How did the Indian economy perform during COVID?

It could be interesting to determine how the Indian economy performed in the last two years amid COVID.

As COVID turned into a global pandemic, countries imposed severe restrictions to curb its impact. It disrupted international commerce, production, supply chain and the overall economy. Despite adversities, the Indian economy was resilient and grew in several segments. The profitabilities of the NIFTY 50 companies (EPS) have gone over by 55% in the last two years. It changed from 472 in FY20 to 735 in FY22. There was measurable growth in earnings, deleveraging, and rising Capex, clearly indicating that the pandemic had accelerated the development of the organised sector.

What to expect from the market

Data shows that global indices, on average, had been resilient through wars and geopolitical crises. The market typically bounced back within 9-12 months from the catastrophe emanating out of a war situation like this. The Indian economy may continue to benefit from the strong undercurrent appearing on the domestic front. The risk-reward ratio in the market has improved as much by 15-20% over the last few months.

There are early signs of growth in infrastructure, real estate, and BFSI, while auto and metals are gradually bottoming out from the depth.

The balance sheets published by the Indian corporation during H1 FY22 indicate strong performance despite COVID resistance. Net operating cash flow of 144 companies among NIFTY200, excluding the BFSI segment, grew by 18%, while net and gross NPA of 34 primary listed banks declined by 5 and 23% from their pre-COVID (Dec-19) value.

It is worth noting that in the last 3-4 months, there was a significant shift from FII to DII. DII has supported the market while FII selling continued contributing USD 13.3 billion, while FII puled out USD 14.3 billion.

The final words

So far, the Rupee has been remarkably resilient amid the ongoing crisis. But one can’t say for sure what the situation will be like if the war extends longer. For instance, if the crude oil price keeps rising, it will raise the inflation rate in the economy and put pressure on the Rupee. To form a consolidated idea, we need more clarity on the informal sector recovery and rural demand outlook. For the time, we can say that the risk-reward ratio in the current market is better for investing in large-cap, organised segments.

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