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War may end soon, important to prepare for peace: Raamdeo Agrawal

For the Indian stock markets, the real war is the continuous FII selling which has been about $1 billion daily for the past few days.

March 09, 2022 / 09:35 PM IST
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The war between Russia and Ukraine may get over soon, but some other shock might come up, according to Raamdeo Agrawal, cofounder and joint managing director of Motilal Oswal Financial Services.

It’s important to be prepared for peace now because many sectors have suffered and will continue to face hardships due to the lingering effect of the war and sanctions. Additionally, an invisible risk—one that we may not be aware of—is always persisting, Agrawal said.

“One risk may be over but there might be something else that might be brewing somewhere, so we need to always be prepared for any kind of risk,” Agrawal said in the studios of CNBC-TV18, where he was the guest editor on March 9.


The equity markets, especially in India, are being impacted by the geopolitical tensions between Russia and Ukraine, which have resulted in sustained selling by foreign institutional investors.

“For the Indian stock markets, the real war is the continuous FII selling, which on a daily basis is in the region of $1 billion for the past few days,” he said. “The FIIs have exited India for now but they will have a very painful entry whenever they decide to come back to Indian equities.”

The withdrawal by FIIs was offset to some extent by retail and domestic institutional investors, he said.

FIIs sold a net Rs 8,142.60 crore of shares, while domestic institutional investors bought shares worth Rs 6,489.59 crore on March 8, according to provisional data available on the NSE.


Retail investors

Though it is too early to say that the tide has turned and a bear market has started, Agrawal said the current scenario is risky for both the markets as well as retail investors. Many first-time investors joined the markets over the past couple of years, hoping to ride the rally and this is the first time they are facing such a sell-off, which can cause panic and push them over the edge.

“Yes, it is a risk to a large extent because you can push the retail investors up to a certain extent, but once they break down, everyone will break down together,” he said.

The situation is also very different this time because the other safe asset class of fixed income has also collapsed.

“Fixed-income returns are not going to rise in the near term so there is no alternative asset class to shift from equities,” Agrawal said. “Retail investors might step back and watch from the sidelines till the markets stabilise and once prices start moving up, they will come back with double the vigour.”

Commodity prices

Commodity prices have rallied strongly and may not fall back to pre-conflict levels immediately after the conflict ends.

“It is difficult to quantify the extent of damage done, but there are high chances that the weaker industries have become weaker during the current crisis and the weaker companies within these weak industries will go bust,” Agrawal said.


The converse of this also holds good where strong industries will become stronger and the stronger companies among them will come out winners.

Manufacturing will be impacted the most as higher commodity prices affect the economics of these manufacturing sectors/companies.

“How much they are able to pass on and how they negotiate the current situation remains to be seen,” said Agrawal.

Services or manufacturing?

There is not much doubt that services will fare fundamentally better than manufacturing because IT, banking, broking, and insurance, among others, have not been impacted by the current crisis to a large extent.

“Banks, broking and insurance companies are getting impacted by the mark-to-market losses but their fundamentals are still strong,” Agrawal said.

Banking stocks have been battered by the ongoing FII pull-out. Banking constitutes 27-28 percent of Indian indexes and whenever FIIs take a call on any index, sectors with high weightage get impacted the most.


Agrawal is not surprised by the tepid performance of big Indian banking stocks including HDFC BankKotak Mahindra Bank and Axis Bank.

“Businesswise, these banks are in a very sweet spot and have the capacity to write the entire India growth story,” he said.

The fact that their asset quality is fully provided for, the credit cycle is on an upswing and the credit cost cycle is on a downward swing add confidence in these stocks from a medium to longer-term perspective.

Agrawal continues to be bullish on the Indian IT sector, which is likely to double in the next five years. The current tech spend in the US is 5 percent of GDP and this is expected to go up to 10-12 percent in the next five years, which in itself is a $1 trillion incremental spend and the Indian IT sector will be the biggest beneficiary.

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Gaurav Sharma
first published: Mar 9, 2022 03:54 pm