Russia-Ukraine war escalation: Impact on the Indian stock market

Mint

3 days ago

'Operation Spider's Web' has been the top trending topic around the world over the last two days…
…and for good reason.
This is the name given to a military operation by Ukraine to attack deep inside Russia using drones smuggled into the country.
The losses suffered by Russia—long-range strategic aircraft—have been estimated by Ukraine to be $7 billion, a truly colossal amount.
The event, dubbed 'Russia's Pearl Harbour' by many online, is a major escalation in the ongoing war.
This has raised fears of a Russian counter-escalation. At the time of writing, Russia hadn't responded with an attack that would be considered such a counter-escalation.
Also Read: Analysts and investors have soured on Asian Paints. Can it prove them wrong?
But it seems likely.
This, in turn, has spooked financial markets.
So, what could be the impact on the Indian stock market?
Read on…
Flight to safety: The big fear in the market is that Russia could retaliate with nuclear weapons. This seems unlikely, but no one knows how the war could continue from this point.
If something big and unexpected happens, there will be a knee-jerk reaction in the market.
We can expect a 'flight to safety' by foreign investors as they sell stocks in emerging markets and move their funds into US bonds.
This is known as a 'risk off' trade because FIIs do not want to be very active in emerging markets like India during such a risky situation.
This will result in a decline in the benchmark indices—Nifty and Sensex—and possibly even bigger declines in the broader market of mid-caps and small-caps.
However, in this scenario, share prices of fundamentally strong companies will fall less than the market. We saw this happening in the 2025 market correction.
How should investors respond to such a market correction?
The first thing you should know about market corrections is that the market will always recover.
Short-term corrections are part of every bull market. No stock market in the world goes up in a straight line…and never will.
It's said that bull markets climb a 'wall of worry'.
The current situation in Ukraine is just one of those 'worries'.
The most sophisticated investors and the ones with the biggest pockets, always try to factor in worst-case scenarios. They do this to protect their wealth but also to take advantage of any short-term opportunities the market provides.
A market correction due to the ongoing situation in Ukraine will be one such opportunity.
The smart money will use this opportunity to buy high-quality stocks at reasonable valuations during the correction. This is why these stocks will fall lees than the rest of the market.
Also Read: These five private banks in India have the lowest NPAs. Should you invest?
You should be doing the same.
Keep a watchlist ready of fundamentally strong stocks that you would like to own for the long term.
Buy them during the correction if it happens.
If the correction does not happen, then there is no harm in waiting. Just ensure your watchlist is up to date and you are ready to act when the correction does arrive.
This has been our consistent message at Equitymaster. Those who have followed it have done very well for themselves.
Focus on creating long-term wealth
Would you like to consistently take advantage of market corrections, especially the sharp ones due to war or other external factors?
This is what the smart money does to create long-term wealth. You can do it too.
At Equitymaster, we suggest the following…
Identify your circle of competence, i.e., sectors and themes you understand and are excited about in terms of growth.
Study as much as you can about all the stocks in your circle of competence.
Buy the shortlisted stocks when they become undervalued in a correction.
Hold on and consider buying more on dips.
Also, the size of the circle of competence does not matter; the depth of your understanding does.
Is this process easy?
Yes and no.
Yes, because anyone can do it.
Anyone can read annual reports of companies to understand a sector.
Anyone can learn the basics of fundamentals and valuations.
No, because there is work involved. It takes time to create wealth after all.
You will need to put in the necessary effort. And you will need patience.
You can get started by checking out Equitymaster's stock screener for fundamentally strong stocks in India, consistent compounding stocks and best long-term stocks in India.
Conclusion
Don't get scared out of the market for any reason, including the possibility of wars or a dangerous escalation of an ongoing war.
Time in the market is more important than timing the market.
Also Read: This small-cap has already gained 1,000%. Can AI fuel its next leap?
Stay invested so as to not hurt your wealth creation journey.
Remember, there will always be something or the other to worry about in the stock market.
But as long as you have purchased high-quality stocks at reasonable valuations, you don't have to worry about your portfolio during a correction.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.