The rising geopolitical tension in the Middle-East is set to have its fallout on equity markets across the globe and India will be no exception. The headline indices of Dalal Street are likely to open gap down as GIFT Nifty was trading 134.50 points, or 0.60 per cent lower, at 22.452.5 early on the Monday morning. In its first direct attack, Iran launched hundreds of drones and missiles against Israel, in an unprecedented attack. The strike came as a response to an Israeli raid on the Iranian consulate in Syria a couple of weeks ago. The tension between Israel and Iran may push oil prices, which is not a good sign for Indian oil marketing companies. It may push gold prices, which are already hovering around record highs. The development would also cut hopes of rate cuts by the US Fed in June.
“The escalation of conflict will increase volatility in the global equity markets including India. The world will watch the response by Israel and the G7. Further escalation in the conflict may lead to a hike in crude oil prices and in turn push inflation upwards. This reduces the chances of rate cut,” said Shrey Jain, Founder and CEO SAS Online, a discount broker Indian exporters may see an increase in costs, be it tariffs or time to deliver. This should hamper the margins and the market participants should discount the same quickly by selling such counters. “Stocks of oil marketing companies too should be watched out for. Sustained high crude oil prices, lower margins and inability to pass on higher prices ahead of elections, should act against OMCs," he said.
Investors are closely monitoring developments between Israel and Iran, which could impact oil supplies. Despite challenges posed by inflation and treasury yields, hopes of strong corporate profits in India overshadow concerns, said Prashanth Tapse, Senior VP (Research), Mehta Equities, who recommends focusing on buying opportunities for Nifty and Bank Nifty. Asian shares slumped and gold prices rose on Monday morning, as risk sentiment took a hit after Iran's retaliatory attack on Israel stoked fears of a wider regional conflict and kept traders on edge. US stock futures, meanwhile, ticked higher, after a heavy selloff on Wall Street on Friday. The MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.71 per cent. Japan's Nikkei tanked 1.25 per cent; Australia's ASX 200 declined 0.50 per cent; New Zealand's DJ tumbled 0.75 per cent; China's Shanghai rallied 1.18 per cent; Hong Kong's Hang Seng plunged 0.85 per cent; South Korea's KOSPI crashed 1.19 per cent in the early trade on Monday. "Gulf and Israeli stock markets marginally down to flat after the Iran action this weekend. Gives hope that after the initial dip in Asian markets in the morning, stocks may see some dip buying . If this remains a 'we’re done now' rather than escalating , focus will be back on corporate earnings and the Fed outlook," said Ajay Bagga, an independent market expert in a post on X. This extensive onslaught marks another flashpoint in the Israeli- Hamas conflagration, a significant worsening of the geopolitical situation in general and the Middle East in particular, said Manoranjan Sharma, Chief Economist at Infomerics Ratings. "Going forward, the stand of the US is likely to be a major factor in this rapidly evolving situation. Uncertain times ahead," he added. The dollar steadied on Monday, holding its biggest weekly gain since 2022, as escalating conflict in the Middle East and the prospect of stubbornly high US interest rates gave support. The dollar went up 1.6 per cent against a basket of six major currencies, while the Indian Rupee may drop on Monday, triggering FPI outflows. FPI investment in April stood at Rs 13,347 crores. Friday witnessed big FPI selling to the tune of Rs 8,027 crores on fears of changes in India-Mauritius tax treaty. This will weigh on FPI inflows in the near-term till clarity emerges on details, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services. "Another major concern is the surcharged geopolitical situation in the Middle East with heightened tensions between Iran and Israel. These will keep the markets on tenterhooks in the near-term. In brief, the coming few days will be tough for FPI which might see more outflows," he said.