Nifty 50, Sensex decline on Israel-Hamas war: 5 factors that weigh on market sentiment
Nifty 50 slipped below 19,500 in early deals as the Israel-Palestine war weighed on market sentiment.
The Israel-Palestine war spooked investors as equity benchmarks Nifty 50 and the Sensex crashed about a per cent each in early deals on Monday, October 9.
Nifty 50 opened at 19,539.45 against the previous close of 19,653.50 and fell 0.90 per cent to the day's low of 19,480.50 while the Sensex opened at 65,560.07 against the previous close of 65,995.63 and fell 0.85 per cent to the day's low of 65,434.61 in Monday's trade.
Nifty 50 finally closed at 19,512.35, down 141 points, or 0.72 per cent. The Sensex ended the day with a loss of 483 points, or 0.73 per cent, at 65,512.39.
The BSE Midcap index closed with a loss of 1.22 per cent while the Smallcap index fell 1.72 per cent.
The overall market capitalisation of the firms listed on the BSE dropped to nearly ₹315.9 lakh crore from ₹319.9 lakh crore in the previous session, making investors poorer by about ₹4 lakh crore in a single session.
Also Read: Market close: Nifty 50, Sensex snap 2-day winning run; investors lose about ₹4 lakh crore in a day
Let's examine five crucial factors that seem to be influencing market sentiment:
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1. Israel-Palestine war
The Israel-Palestine war is a fresh concern for the markets. Israel declared war against Hamas after its fighters breached the border from Gaza in a surprise attack on Saturday that killed nearly 1,000 people and wounded several others. Several Israelis were taken as hostages in Gaza after the rocket attack.
The war so far is confined to Israel-Palestine but has the potential to have a ripple effect. Experts say even though there is no need to panic at the moment, it will be crucial to see how things evolve gradually.
"The Israel-Hamas conflict has introduced a huge uncertainty for the markets. Nobody knows how this war is going to evolve. From the market perspective, it is important to understand that even though the death and destruction are tragic, presently it is unlikely to cause major disruption in oil supplies thereby impacting major oil importers like India. But the situation will change if Iran, a major Hamas supporter, is drawn into the war. That can disrupt oil supplies causing a spike in crude, which can trigger a risk-off in the market," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed.
"This is a time to be cautious. Investors may refrain from taking big risks. Wait for the developments to unfold. Long-term investors can slowly accumulate high-quality stocks on declines," Vijayakumar said.
Manoranjan Sharma, Chief Economist at Infomerics Ratings believes the surprise Israel-Palestine war would have wide-ranging ramifications and repercussions across geographies, economies and sectors.
"There will be volatility in the bond and equity market temporarily. Bond yields will harden, the cost of credit may go up for companies, and crude prices will rise if it spills over to West Asia. Gold may become a safe haven," said Sharma.
2. Sharp jump in crude oil prices
Crude oil prices surged over 4 per cent on concerns over supply disruption after a war between Israeli and Palestine's Hamas forces over the weekend deepened political uncertainty across West Asia.
Crude prices corrected about 9 per cent last week from the year-high after oil cartel Opec proposed to keep output cuts steady at its October 5 meeting. However, a prolonged conflict in West Asia could shoot up oil prices if Iran gets actively involved in the conflict.
If oil prices go up, it will impact India's trade deficit, the current account deficit and also to a limited extent, the fiscal deficit.
Also Read: Bond market going through a rough patch; should equity investors be worried? Experts weigh in
3. Caution ahead of Q2 earnings
There appears to be some caution in the market ahead of the September quarter earnings of India Inc. Experts are expecting the Q2 to be a soft quarter with more sectors reporting a tepid scorecard. The earnings of some sectors may show decent year-on-year growth but a firework is unlikely.
Also Read: Earnings preview: Experts expect more misses than hits in Q2; how can it impact market sentiment?
Brokerage firm Motilal Oswal Financial Services expects Nifty earnings to increase 15 per cent year-on-year (YoY) for the quarter.
"Overall earnings growth is anticipated to be driven once again by domestic cyclical, such as BFSI and auto, which are expected to post 26 per cent and 87 per cent YoY jump while consumer and cement would report a healthy 15 per cent and 72 per cent YoY growth, respectively," said Motilal Oswal.
"Technology and metals are anticipated to report moderate earnings growth of 7 per cent and 6 per cent YoY, respectively. We have marginally cut our FY24 and FY25 Nifty EPS (earnings per share) estimates by 0.3 per cent and 0.9 per cent to ₹986 and ₹1,132, respectively. We now forecast the Nifty EPS to grow 22 per cent and 15 per cent in FY24 and FY25, respectively," Motilal Oswal said.
4. Persisting concerns over interest rates, global economic slowdown
The concerns over higher interest rates and their impact on economic growth refuse to fade away. With the US Fed clearly indicating one more hike in interest rates was on the cards and rates can stay elevated for a longer period has dealt a blow to investors' hopes that rate hikes have peaked and central banks could begin thinking about rate cuts.
"US employment increased by the most in eight months in September as hiring rose broadly, pointing to persistent labour market strength that could give the Federal Reserve ammunition to raise interest rates again, though wage growth is slowing," reported Reuters.
Last week, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5 per cent and also retained its policy stance as the "withdrawal of accommodation". But the tone of the RBi Governor Shaktikanta Das remained hawkish.
“I would like to emphatically reiterate that our inflation target is 4 per cent and not 2 to 6 per cent. Our aim is to align inflation to the target on a durable basis while supporting growth," said Das.
5. FII selling
Foreign institutional investors (FIIs) have been offloading Indian equities after the recent gains thanks to rising bond yields and the dollar index.
NSDL data show foreign investors sold Indian equities worth ₹14,768 crore in September and ₹7,998 crore in October so far.
Technical view on Nifty 50
Santosh Meena, Head of Research at Swastika Investmart pointed out that from a technical standpoint, the 19,300–19,250 range is a critical demand zone.
"Until the market stabilises within this range, it's likely to remain in a sideways pattern, facing a notable obstacle at 19,800. A breach below 19,250 could lead to a healthy correction, potentially reaching the 18,800 level. For short-term traders, it's advisable to exercise caution and not rush into trades. On the other hand, a substantial correction could present an excellent buying opportunity for long-term investors," said Meena.
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