Nifty Plummets as Geopolitical Tensions Escalate, Experts Weigh In

The Indian stock market experienced significant volatility on Thursday, with the Nifty index plunging over 200 points from its intraday high before partially recovering. The market sentiment shifted significantly, as the Nifty closed below the critical 22,000 mark for the first time since March 20. The broad-based selloff was led by the banking sector, with the Nifty Bank index shedding over 400 points.

Geopolitical tensions took center stage, as reports of Israeli air strikes on Iran sent shockwaves through global markets. The escalation in the Middle East led to a surge in oil and gold prices, fueling concerns about the impact on the global economy. Across various sectors in India, except for FMCG, all others faced losses, with PSU Bank, Realty, IT, and Media sectors experiencing declines of over 1% each.

Rajesh Bhatia, the CIO of ITI AMC, discussed market strategies amidst the geopolitical uncertainty in an interview with Sucheta Anchaliya. "The Indian market witnessed selling pressure during the week due to geopolitical tensions following Iran's attack on Israel, which affected markets globally," Bhatia noted. He advised investors to use any rise as an opportunity to go short and avoid aggressive bets given the high volatility.

The options data indicated resistance for the Nifty at 22,200 and 22,500, with support at 22,200 and 21,900. Forex traders attributed the Indian currency's fall in early trade to risk aversion in global markets. Analysts expect the bearish bias to persist in the near-term due to higher US bond yields and uncertainty surrounding the tensions in West Asia, elevated bond yields, and the ongoing corporate earnings season.

Why this matters: The geopolitical tensions between Iran and Israel have far-reaching implications for global markets and economies. The escalation of conflicts in the Middle East can lead to increased volatility, higher oil prices, and potential disruptions to trade and financial flows. As a major emerging market, India is particularly sensitive to such global developments, emphasizing the need for investors and policymakers to closely monitor the situation and adapt their strategies accordingly.

Despite the recovery in the Indian market on Friday, driven by eased tensions and the commencement of the general elections, fragility persists due to elevated oil prices posing inflation risks. Foreign institutional investors remained risk-averse, and global sentiment was subdued. Analysts suggest that positive surprises in inflation, geopolitical developments, or Q4 earnings are critical for a sustained rally in the market, recommending a 'buy on dips' strategy for the Nifty and Bank Nifty indices.

Key Takeaways

• Nifty index plunged over 200 points, closing below 22,000 mark for first time since March 20.
• Geopolitical tensions between Israel and Iran led to surge in oil and gold prices, global market selloff.
• Analyst advised investors to use any rise as opportunity to go short and avoid aggressive bets.
• Bearish bias expected to persist due to higher US bond yields, West Asia tensions, and earnings season.
• Market recovery on Friday driven by eased tensions, but fragility persists due to elevated oil prices.