Nifty 50, Sensex slump on Israel-Hamas war: Some reasons weighing on market sentiment

Investors were alarmed by the Israel-Palestine conflict, which caused the Nifty 50 and the Sensex, two equity benchmarks, to drop by nearly 1% each in early trade on Monday, October 9.

The Sensex opened at 65,560.07 against the previous close of 65,995.63 and slid 0.85 percent to the day’s low of 65,434.61 in Monday’s session. The Nifty 50 opened at 19,539.45 against the previous close of 19,653.50 and lost 0.90 percent to the day’s low of 19,480.

But later on, the market started to rise again. Around 10:45 am, the Nifty 50 was down 0.46 percent at 19,563 and the Sensex was down 0.46 percent at 65,692. The BSE Midcap and BSE Smallcap indices, which initially declined by about 1.5% and 2%, respectively, also reduced losses.

Investors suffered a loss of about 4 lakh crore as a result of the entire market capitalization (mcap) of the firms on the BSE falling to nearly 316 lakh crore from 320 lakh crore in the previous session. Naturally, the BSE mcap also increased to roughly 317 lakh crore later with the market rebound.

Let’s look at five significant variables that appear to be affecting market sentiment:

First, the Israel-Palestine War

Markets are currently worried about the Israel-Palestine conflict. After Hamas fighters infiltrated the border from Gaza on Saturday in a surprise attack that left about 1,000 Palestinians dead and several others injured, Israel declared war on the organization. After the missile incident, several Israelis were taken hostage in Gaza.

Although the war has so far only involved Israel and Palestine, it may spread. Although there is currently little reason for alarm, experts warn that it will be important to monitor how things develop gradually.

“The Israel-Hamas war has caused the markets to be extremely uncertain. Nobody knows how this conflict will develop. It is crucial to realize from a market viewpoint that despite the horrific death and devastation, it is currently unlikely to result in a significant disruption of oil supply, which would have an effect on large oil importers like India. However, if Iran, a significant Hamas supporter, is involved in the conflict, the scenario will change. That might hinder the flow of oil, pushing up the price of petroleum and setting off a market sell-off, according to V K Vijayakumar, chief investment strategist at Geojit Financial Services.

 

“Now is a moment to exercise caution. Investors may decide against taking significant risks. Wait for the situation to evolve. On falls, long-term investors can gradually accumulate high-quality equities, according to Vijayakumar.

 

The unexpected Israel-Palestine war, according to Manoranjan Sharma, Chief Economist at Infomerics Ratings, would have broad implications and repercussions across geographies, economies, and sectors.

 

The bond and equities markets will experience brief turbulence. Bond yields will increase, the cost of financing for businesses may increase, and if it spreads to West Asia, crude prices will increase. Gold can develop into a refuge,” Sharma added.

A sudden increase in crude oil prices

Concerns over supply interruption caused the price of crude oil to increase by more than 4% after the weekend conflict between Hamas militants in Palestine and Israel heightened political unrest throughout West Asia.

Following the oil cartel Opec’s proposal to maintain output restrictions at its meeting on October 5, crude prices declined by approximately 9% last week from the peak of the year. However, if Iran becomes actively involved in the battle, a protracted conflict in West Asia might dramatically increase oil prices.

An increase in oil prices will have an effect on India’s trade deficit, current account deficit, and, to a lesser extent, fiscal deficit.

Be cautious before Q2 earnings

In anticipation of India Inc.’s September quarter earnings, there seems to be some hesitancy in the market. More sectors are expected to record a weak scorecard in the second quarter, according to experts. While certain industries’ earnings may increase respectably year over year, a fireworks display is unlikely.

The brokerage Motilal Oswal Financial Services anticipates a 15% YoY growth in Nifty earnings 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,” Motilal Oswal said.

“Modest earnings growth of 7% and 6% YoY, respectively, is predicted for technology and metals. We have slightly decreased our Nifty EPS (earnings per share) predictions for the years FY24 and FY25 to 986 and 1,132, respectively. In FY24 and FY25, respectively, we now expect the Nifty EPS to climb by 22% and 15%, according to Motilal Oswal.

Ongoing worries about interest rates and the decline in the global economy

Concerns about rising interest rates and how they might affect economic expansion won’t go away. Investors’ hopes that interest rate hikes have peaked and central banks can start considering rate reduction have been dashed by the US Fed’s unambiguous indication that one more rate hike is planned and that rates can remain high for a longer term.

 

“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,” according to Reuters.

The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) made the decision last week to maintain the repo rate at 6.5 percent and to maintain its “withdrawal of accommodation” policy stance. Shaktikanta Das, governor of the RBI, continued to speak in a hawkish manner.

 

“I would like to firmly state once again that our inflation target is 4%, not 2 to 6%. Our goal is to stimulate growth while maintaining a long-term alignment of inflation to the objective, according to Das.

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Selling by FIIs

Due to recent advances in Indian equities brought about by rising bond yields and the dollar index, foreign institutional investors (FIIs) have been selling them.

According to NSDL data, foreign investors sold shares of Indian companies worth $14,768 crore in September and $7,998 crore so far in October.

Technical analysis of the Nifty 50

According to Santosh Meena, Head of Research at Swastika Investmart, the 19,300–19,250 range is a crucial demand zone from a technical perspective.

“Until the market finds stability inside this range, it is expected to continue moving sideways, with a significant barrier at 19,800. A breach below the level of 19,250 can trigger a healthy correction that eventually reaches the level of 18,800. It is recommended for short-term traders to proceed with caution and avoid making rash decisions. On the other side, a significant downturn could offer long-term investors a fantastic purchasing opportunity, according to Meena.