Market mood: Will Iran-Israel crisis test Dalal Street's nerve on Thursday?

The Indian stock market is anticipated to experience a decline on Thursday, primarily due to escalating geopolitical tensions in the Middle East and technical weaknesses in the domestic market. Over the past five trading sessions, the Nifty index has dropped by 480 points, closing at 25,797 on Tuesday (October 1) after sliding from a peak of 26,277.

Experts believe that the market may face additional pressure in the coming days, as increasing tensions between Israel and Iran are likely to negatively impact market performance. This could potentially bring the Nifty down to levels of 25,550 to 25,600. Investors are advised to stay vigilant, as uncertainty and market pressure are expected to persist.

Crude Oil Situation

According to Prashanth Tapse from Mehta Equities, if the Israel-Iran conflict escalates further, it will bring significant risks. Historically, oil prices respond first to events such as rising tensions between nations or terrorist attacks. However, prices typically normalize and return to pre-tension levels within a few weeks.

Iran is particularly significant, as its crude oil output has increased by 20% over the past two years, now accounting for 3.3% of global supply. Any attack or conflict between these countries raises concerns about supply disruptions in the Middle East.

While the spike in crude oil prices may be short-lived, it is expected to remain volatile throughout the second half of FY2025, as news related to the conflict will likely dominate discussions in the near to medium term.

Nifty Outlook

Jatin Gedia, a Technical Analyst at BNP Paribas, noted, "Nifty opened flat and experienced a range-bound trading day, closing with a slight decline of about 14 points. Daily charts indicate that selling pressure in Nifty is being absorbed around the 25,700 mark, coinciding with the 23.6% Fibonacci retracement level. The decline on hourly charts appears to be impulsive, suggesting a possible pullback towards 25,950 – 26,000 before the next leg of the decline resumes. Therefore, traders should look for signs of weakness around the resistance zone and consider initiating short positions. A correction could take the Nifty down to the 25,500 – 25,360 range, which aligns with the 20-day average and the 38.2% Fibonacci retracement from the August-September rally."

Bank Nifty Outlook

The Bank Nifty also experienced selling pressure, closing down by about 55 points. Following sharp declines in the last three trading sessions, a pullback is expected as the hourly momentum setup indicates a counter-trend pullback towards 53,400 – 53,500. Ideally, this counter-trend pullback towards the resistance zone of 53,400 – 53,600 should be used as a selling opportunity. A stop loss of 53,700 should be maintained for short positions.

Sector Focus

Vinod Nair, Head of Research at Geojit Financial Services, stated, "Global markets have become volatile due to rising geopolitical risks in the Middle East and the potential increase in Yen interest rates, which may reduce cross-country investments in equities. Conversely, the Chinese market has seen increased equity flows due to a large stimulus package and cheap valuations. India also appears weak under global pressures and premium valuations, while metals are expected to perform better in the near term. Moving forward, the domestic focus will be on the upcoming Q2 results, where earnings growth is expected to improve after the sluggish Q1."