The current Russia-Ukraine conflict can benefit Indian investors if they understand how to capitalize on the stock market’s influence. On March 7, the Sensex index fell roughly 1,500 points to 52,842, while the Nifty 50 index fell 382 points to 15,863. There was a major breakdown in March 2020, when the Indian government declared a total economic shutdown except for a few critical services.
Because of the Russia-Ukraine issue, the market may continue to be turbulent. In the short term, the trend will be determined by the rupee against the dollar, the movement of global equities, and crude oil prices.
Several high-quality large-cap and blue-chip equities are now accessible at a lower price than previously due to FPI selling pressure. The ongoing market-wide selloff sparked by the Russia-Ukraine conflict had further expedited this trend, as FPIs were selling well before the news of the conflict surfaced.
How to earn profits from the Russia-Ukraine conflict
Systematic approach: Nobody knows when the markets will recover after falling due to the uncertainty caused by the Russia-Ukraine conflict. Rather than going all-in, the best strategy is to invest in a low-risk debt fund or ETF and then employ a systematic withdrawal plan (SWP) to transfer cash into your equity funds at a predetermined date.
Think of long-term investment: While it is true that deep market corrections present an opportunity for investing, this strategy only works if one buys for the long term. Experts suggest that geopolitical tensions and market swings should not be the main reasons to invest.
Asset allocation: Asset allocation is similar to putting together a football squad with defenders, strikers, midfielders, and a goalkeeper. Only forwards or only defenders cannot win a football match. When it comes to investing, you need assets that give capital growth, inflation protection, consistent income, and protection from geopolitical disasters like war. You should tailor your asset allocation to your risk profile, financial goals, and investment horizon based on this foundation.
Since the news of the war broke, the price of shares and other asset classes has dropped dramatically. Bond yields have risen, gold and other precious metals are trading at a premium, while equities have fallen significantly in value. Given the developments, it might be time to rebalance your portfolio. Consult an advisor if you believe you won’t be able to do it independently.
Avoid hasty decisions: Given the panic among investors, it’s best to avoid liquidating investments too quickly in a volatile market. It would be beneficial to examine your investment portfolio rather than simply following the herd. Always make it a point to handle your investments following your needs, rather than haphazardly or by emulating what your friends and family do.
Once the markets recover, you may come to regret your decision. Many investors, for example, liquidated their stock equity mutual funds and stopped participating in systematic investing plans (SIP). According to historical statistics, investors who continued their SIPs despite the first COVID-19 market meltdown in March 2020 and remained on would have gained more during the market rally than those who prematurely withdrew in fear.
Analyze your investment portfolio: This process of assessing your holdings and inspecting their performance will aid you in spotting schemes or asset classes that are not doing well or have been exposing you to unnecessary risk due to a worldwide crisis. The investments in your portfolio may be appropriate according to your asset allocation plan, but they are unsuitable in today’s market conditions, resulting in a drop in portfolio performance.
When the market mood becomes poor, keep in mind that you should not panic and make changes if your portfolio is underperforming. Investors should not make rash decisions about their portfolios without thinking them through, nor should they react to volatility with a knee-jerk reaction.
Financial literacy has been associated with budgeting, saving regularly, investing sensibly, and avoiding poor financial mistakes for a long time. Financial knowledge will provide you an advantage in being financially aware and supporting you in making informed investment decisions, both of which are crucial in these difficult times.
As a result, investors can explore schemes such as dynamic asset allocation and multi-asset, mention a few. The benefit of investing in a category like this is that investors can have exposure to various asset classes through a single fund. SIPs in categories such as value and flexicap, to mention a few, are available for equity-only investing.