Indian Stock Markets Snap Three-Day Winning Streak Amid Geopolitical Tensions

Indian stock markets snapped a three-day winning streak on Thursday, erasing the gains made in the last three trading sessions and marking their worst intra-day fall since the Union Budget on February 1. On Thursday, the Nifty 50 and the BSE Sensex fell around 1.8% each after rising nearly 1.3% in the past three sessions. These indices closed at 25454.35 points and 82498.14 points, respectively. All 30 constituents of the BSE Sensex and 47 stocks in the Nifty 50 ended in the red. Even the broader markets fell in line, with the BSE Mid-cap and BSE Small=cap indices fell 1.52% and 1.23%, respective. All sectoral indices also ended lower. As a result of the sharp fall, investor wealth eroded by Rs 6.79 lakh crore. Both domestic institutional investors and foreign portfolio investors were net sellers today. DII sold shares of 596.28 crore while FIIs sold shares worth Rs 880.49 crore, according to provisional data from the BSE. The India VIX was also up by 10%. Market experts said that the weekly expiry of BSE also weighed on the indices on the domestic front. “The market witnessed aggressive selling on account of expiry where bulls liquidated positions, geopolitical tension due to US Iran situation and selling in tech sector due to fear of AI,” said Nilesh Shah, MD, Kotak Mutual Fund . Agreed Siddhartha Khemka, head of research – wealth management at Motilal Oswal Financial Services, “ Market sentiment turned cautious amid rising geopolitical tensions, following concerns over a potential conflict between the US and Iran and speculation of possible military action over the weekend,” he said. As per media reports, the US military is prepared to strike Iran as early as this weekend though the country has not made an official statement about the same. Khemka also expects the near-term sentiment in the market to remain cautious due to escalating geopolitical risks and the possibility of oil supply disruptions. “Any escalation involving Iran could impact shipments through the Strait of Hormuz, which would be particularly negative for India given its heavy dependence on crude imports from the region,” he added. Another sentiment dampener was the possibility of an interest rate hike in the US if inflation remains high, as indicated in the minutes of the Federal Reserve’s monetary policy meeting in January. While the US job market is improving, there are still concerns that inflation will stay higher for longer. “If interest rates in the US actually go up, it can negatively affect emerging markets like India,” Shrikant Chouhan, head of equity research at Kotak Securities, said. Higher US rates could push the US 10-year bond yield higher, which may attract global money back to the US. This can also strengthen the dollar, putting pressure on emerging market currencies, including the rupee. As a result, our currency could weaken in the medium term. While the medium-term outlook on the Indian stock market remains positive, one needs to see if this volatility on account of international triggers will continue, Sunil Jain, head of equity research – retail at Nirmal Bang Securities said. Valuations are a bit on the higher side for large-caps, but not extraordinarily high, Jain said, adding that the mid-cap and small-cap space remains expensive.