Investors buy value as markets recover half losses on war off ramp; oil crashes

Hectic purchases over last one week saw India’s Nifty regain 50 per cent of its losses since the US-Iran hostilities began in early March as cash rich fund managers bought into juicy valuations and investors opened purse strings in a market that plunged 15 per cent.

Cash as a percentage of assets under management fell sharply in March, data from equity mutual schemes shows as fund managers bought renewable stocks, PSU banks, metal companies, pharma shares and defence equipment makers. The six-week war between oil-rich Iran and the United States-Israel combine had rattled equities globally as crude oil prices rose to highest in near four years.

As a consequence, the Nifty had plunged 12 per cent, or nearly 4,000 points, to a 1-year low as analysts reworked earnings forecasts in an economy whose oil bill nearly doubled as it imports nearly 85 per cent of its energy needs, nearly half of them coming in from the blocked Straits of Hormuz.

But investors figured the selling, over 28 sessions, was overdone as the Nifty’s valuations slipped close to five-year averages. The rally began a week ago despite deteriorating news from the war.

The 50-share benchmark has surged 2,000 points, or 9 per cent, in the past 7 trading sessions investors bought companies such as Adani Enterprises, Trent, IndiGo, Shriram Finance, Axis Bank and Larsen & Toubro within the index. Many beaten down midcap shares rose between 30-96 per cent in this period as their crushed valuations attracted fresh money.

Valuations are now evenly synched with prices as the severe geopolitical dislocation heads towards normalcy. Oil prices have inched below $95 a barrel from $125 in early April. They were at $55 before the war started. Analysts expect oil to slip further, prompting hopes that equities will rally more.