As the Israel-Hamas conflict escalates, the Indian stock market braces for potential turbulence. While there’s no immediate cause for panic, fund managers are closely monitoring the situation’s evolution, knowing that any further escalation of the war could significantly impact Indian stocks, oil prices, and currency volatility.
The conflict has already had repercussions in global markets, with Israel’s benchmark TA-35 Index plunging by 6.47% on Sunday. In India, the Nifty and Sensex have been trading below their mid-September record highs, with small- and mid-cap benchmarks also experiencing declines due to foreign institutional selling.
Caution Amid Uncertainty:
Samir Arora, founder and fund manager of Helios Capital Management, emphasizes the need for caution. While markets may experience a knee-jerk gap-down opening, it’s better to react than pre-empt any significant moves. Unlike the Ukraine crisis last year, Arora opts for a more measured response this time.
Crude Oil Impact:
Crude oil prices corrected by 9% last week, but a prolonged conflict could trigger a rally. A state actor’s involvement in the orchestrated attacks on Israel raises concerns, and the market anticipates a potential short-covering rally.
Volatility and Commodity Impact:
Volatility could rise as a result of the conflict’s impact on commodities like metals and oil. Indian markets will also be closely watching the upcoming results season and state elections.
Currency and Economic Implications:
A weaker rupee resulting from an outflow of dollars due to risk aversion trades could affect India’s imports, as the country relies on imported crude oil. The rupee is just slightly off its record low from October last year.
Foreign Investment and Bond Yields:
Foreign portfolio investors (FPIs) booked profits in Indian markets last month amid rising bond yields in the US. Rising yields can lead US-based FPIs to shift their investments from emerging markets to US treasuries.
Oil Price Dynamics:
Deven Choksey, managing director of KR Choksey Shares and Securities, highlights the OPEC nations’ commitment to controlling oil prices. While prices may see a knee-jerk increase, a sustainable surge beyond certain levels is unlikely.
Options data suggests a narrow trading range for the Nifty this week, with potential adjustments depending on global developments related to the Israel-Hamas conflict. Markets may open lower on Monday but could recover as the situation unfolds.
In summary, the Israel-Hamas conflict introduces uncertainty into the Indian stock market, and investors are advised to stay vigilant and react prudently to evolving global geopolitical dynamics.