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The Indian stock market has demonstrated a remarkable degree of resilience in the face of escalating geopolitical tensions, particularly those stemming from the conflict between Israel and Iran. Despite mirroring sharp declines observed across Asian markets on Friday, the Sensex and Nifty managed to recover significantly from intraday lows, signaling underlying strength and investor confidence in the Indian economy's fundamental robustness. The initial market downturn was triggered by Israel's military strikes on Iran, an event that intensified geopolitical risks in the oil-sensitive Middle East, sending shockwaves through global equity markets. The BSE Sensex slipped 573 points (0.70%) to settle at 81,118, while the NSE Nifty dropped 169 points (0.68%) to end at 24,718. However, the extent of the recovery from intraday lows underscores the perception that the Indian market is well-positioned to weather short-term volatility, provided the conflict remains contained and does not escalate into a broader regional war. This resilience is partly attributed to the belief that the macroeconomic impact on India will be limited if the conflict remains contained. However, the market's sensitivity to developments in the Middle East cannot be understated. The potential for further escalation, particularly if the Strait of Hormuz is disrupted, presents a significant risk to global oil supplies and could drive oil prices sharply higher, potentially reaching $120 per barrel. This scenario would have profound implications for the Indian economy, given its heavy reliance on imported oil, which accounts for over 80% of its crude requirements.
The immediate impact of the geopolitical tensions has been most pronounced in sectors that are highly sensitive to crude oil prices, including oil marketing companies (OMCs), aviation, paints, and tires. These sectors experienced significant declines as investors anticipated margin pressures arising from rising input costs. Oil marketing companies like HPCL, BPCL, and IOC faced a double whammy of rising crude oil prices and potential regulatory pressures to keep retail prices in check. Their margins are under severe strain, as evidenced by the sharp sell-off in their stocks. Unless crude prices stabilize or the government allows full pass-through to consumers, OMCs could continue to underperform. The aviation sector is also particularly vulnerable, as rising crude prices directly increase fuel costs, pressuring already thin margins. The sector has also been affected by the tragic Air India incident. Considering the magnanimity & scale of the incidence it will take some time for the sector to recoup & regain investor confidence. Technically, Indigo is showing signs of topping out in the short-term, with multiple spinning top candles on the monthly time frame charts, along with negative divergence in RSI. One can see some profit booking in this space. Sectors such as paints, tires, and adhesives, which are significant consumers of crude oil derivatives, also face margin pressure as input costs rise. The rupee faces depreciation pressure, and inflation risks are rising due to India's heavy reliance on imported oil.
However, amidst the prevailing uncertainty, certain sectors stand out as potential beneficiaries or offer relative stability. Defence stocks are likely to benefit from heightened global tensions, as increased government focus on indigenization, higher budget allocations, and export opportunities for Indian defense manufacturers could drive outperformance in this sector. Geopolitical instability tends to accelerate defense spending, both domestically and globally, providing a tailwind for listed defense companies. IT and Pharma sectors are also traditionally viewed as defensive plays, offering global revenue streams and less sensitivity to oil prices. These sectors tend to be resilient during periods of global uncertainty. Select consumer staples and FMCG companies also offer relative stability, as domestic consumption tends to be less affected by global events. Energy producers like ONGC and Oil India, which benefit from higher crude prices, also present opportunities for investors. Technically, the Nifty is trading in a sideways range with support at 24163-23930 and resistance at 25000-25200. Bank Nifty weekly chart closed with a strong engulfing bear candle suggesting selling pressure. However, as this bearish candlestick pattern is neither coming at a resistance level, nor in an overbought territory. One need not worry too much about this engulfing bearcandle & infact, expect that this correction in Bank Nifty will be bought into. The gap level of 54,000-53,400 can act as a strong support followed by 51,860-51,200. The probability of Bank Nifty breaking the second level of support is very low.
Overall, the Indian stock market's response to the heightened geopolitical risks underscores its resilience and the underlying strength of the Indian economy. While certain sectors are vulnerable to rising crude oil prices and potential disruptions to global trade, others stand to benefit from increased defense spending or offer relative stability during periods of uncertainty. Investors should carefully assess the risks and opportunities presented by the current environment and consider diversifying their portfolios to mitigate potential losses. It is important to note that the recommendations, suggestions, views, and opinions given by the experts are their own and do not represent the views of The Economic Times. The macroeconomic outlook for India will largely depend on the duration and intensity of the conflict, as well as the government's response to rising crude oil prices and potential inflationary pressures. A prolonged conflict and sustained high oil prices could widen the current account deficit and reignite inflationary pressures. However, if the conflict remains contained and does not drag on, the macroeconomic impact on India could be limited. Retail inflation is currently at a six-year low, but a prolonged conflict and sustained high oil prices could widen the current account deficit and reignite inflationary pressures. The markets will likely trade in a sideways range in the short term, with key support and resistance levels providing guidance for investors.
Moreover, the resilience exhibited by Indian markets can also be attributed to the increasing sophistication and depth of the domestic investor base. The growing participation of retail investors, coupled with the presence of strong institutional players, provides a buffer against external shocks and contributes to greater market stability. This diversified investor base is less prone to panic selling during periods of uncertainty, which helps to mitigate the impact of geopolitical events on market sentiment. The government's proactive policy measures, such as efforts to promote domestic manufacturing and reduce reliance on imports, also play a crucial role in bolstering investor confidence. These initiatives help to strengthen the Indian economy's resilience to external shocks and create a more favorable investment climate. The long-term growth prospects of the Indian economy remain positive, driven by factors such as a young and growing population, rising disposable incomes, and increasing urbanization. These trends provide a solid foundation for sustained economic growth and attract both domestic and foreign investment. However, it is important to acknowledge that the Indian stock market is not immune to global risks, and investors should remain vigilant and monitor developments in the Middle East and other geopolitical hotspots. A well-diversified portfolio, coupled with a disciplined investment approach, is essential for navigating periods of uncertainty and achieving long-term financial goals. While the immediate impact of the conflict has been felt in sectors sensitive to crude oil prices, the Indian stock market's ability to recover from intraday lows suggests that investors are cautiously optimistic about the long-term outlook for the Indian economy. The coming weeks will be crucial in determining whether the conflict can be contained or whether it will escalate into a broader regional war. In the meantime, investors should remain focused on the fundamentals and avoid making hasty decisions based on short-term market fluctuations. The long-term prospects for the Indian stock market remain bright, driven by strong economic growth and a supportive policy environment.