The stock market is expected to start the week on a lower note, influenced by weak global trends and escalating tensions in the Middle East. Investors are exercising caution amid the surge in oil prices and ongoing withdrawal of foreign investment.
Initial indications point towards a subdued opening. GIFT Nifty futures were trading at 22,564.5 at 8:04 am, hinting that the Nifty 50 index may commence below Friday’s closing level of 22,819.6.
Asian markets have witnessed significant declines, with stocks sliding by 1.9%. Concurrently, Brent crude oil has surpassed $115 per barrel, marking a notable monthly increase. The heightened oil prices are exerting pressure on global markets and impacting risk appetite.
The US-Israel conflict with Iran has now entered its fifth week and is spreading throughout the Middle East. Recent attacks by Yemen’s Iran-aligned Houthis on Israel over the weekend have raised concerns about potential disruptions in crucial shipping routes across the Arabian Peninsula and the Red Sea.
Pakistan has announced preparations for hosting significant talks in the upcoming days to resolve the conflict. Nevertheless, tensions remain high as Iran has cautioned of retaliation if the US deploys troops on the ground.
Market conditions have already experienced a sharp downturn due to global uncertainties. Since the onset of the conflict on February 28, both the Sensex and Nifty 50 have plummeted by around 9.5%.
The Indian rupee has faced pressure, declining to a historic low of 94.84 against the US dollar. A weakened rupee amplifies import expenses, particularly for crude oil, potentially impacting inflation and corporate profits.
Foreign institutional investors persist in selling Indian equities, with Friday’s sales amounting to Rs -4,367.30 crore. This has led to a total outflow of $12.3 billion in March, based on preliminary data.
The sustained selling indicates a cautious stance among global investors towards the Indian markets amidst the current environment.
Vinod Nair, the Head of Research at Geojit Investments Limited, stated that the market direction in the near term will pivot on developments in West Asia peace initiatives and the potential risks to earnings from disruptions in the supply chain.
He noted that Foreign Institutional Investors (FIIs) are expected to be selective as India remains relatively pricey compared to other emerging markets, although the valuation premium has moderated towards long-term averages, which could stabilize flows gradually.
Moreover, he mentioned that while volatility may persist due to fluctuating global risk appetite, further declines could present favorable entry points for long-term investors as external uncertainties normalize and valuation gaps narrow.
Additionally, the central bank has tightened limits on lenders’ net open foreign exchange positions to curb rupee volatility, which has been influenced by global factors and consistent foreign outflows.
The overall market landscape remains weak, with escalating oil prices, global tensions, and continuous foreign divestment likely to keep equities under pressure.
Investors are advised to closely monitor developments in the Middle East. Until there is more clarity, heightened volatility is anticipated, and markets are expected to remain under pressure in the short term.