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Below is the Daily Market Commentary 04 March 2022 By Mr. Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd

Equity markets continued with its selling pressure amid huge volatility following reports of Russian attack on Ukraine’s nuclear plant. Nifty opened gap down in line with global peers and hit a low of 16133, before closing with a loss of 253 points (-1.5%) at 16245 levels. Broader market too tanked with Midcap100/Smallcap100 down -2.1%/-1.8%. Except IT, all the other sectors witnessed huge selling.

In the near term, weakness in market is likely to continue as the Russia-Ukraine conflict has resulted in a global risk-off. Equity markets are undergoing intermittent bouts of correction and elevated volatility and the uncertainty over the duration and magnitude of the conflict could keep the market jittery and dependent on news flow. FIIs continue to remain net sellers in India as the global risk-off sentiment and the geopolitical situation have added to concerns of inflation, higher bond yields, and global rate hikes.

From India’s viewpoint, a sharp spike in crude oil prices (Brent above USD100/barrel) poses key risks on the external balance front and can play spoilsport with the assumptions made in the FY23 Union Budget. For now, the sanctions imposed on Russia have excluded the Oil trade. While it is difficult to predict the end of Ukraine conflict, higher crude oil prices, if sustained for an elevated duration, can result in higher inflation, current account deficit, bond yields, and interest rates in India and thus impact macro-economic stability.

Post the recent correction, the Nifty is now trading at ~19x 12-months forward P/E, which is lower than its 10-year average for the first time since Nov’20. Corporate earnings remained resilient despite the challenges with 3Q/9MFY22 Nifty earnings growing at 25%/45% and forward estimates remaining stable. The healthy earnings visibility can act as a cushion in an otherwise fragile external situation and the recent correction has led to moderation in valuation.

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