Israel-Hamas War: When the conflict between Israel and Hamas began on Saturday, October 7, there were fears of a sudden reaction at its start on Monday. However, gradual changes were observed in both global and Indian markets. However, Indian markets have recovered from a weak start during the week and are on a positive trajectory, surpassing the previous Friday’s close on October 6th. This flare-up can be attributed to a growing consensus that the conflict is effectively contained and is unlikely to spread beyond regional boundaries.
Extensive international support and the inherent strength of the Israeli military were able to maintain firm control of the situation. During this period, Indian markets soared on expectations of a strong start in second quarter earnings, while global markets signaled a decline in bond yields. However, the release of better-than-expected US inflation data and a corresponding rise in US Treasury yields slightly offset some of the positive mood by the end of the first week of the war. However, the market moved into the weekend believing it was safe.
Impact on global markets
However, the start of the second week was challenging as the complexities of war and ground operations became more apparent, leading to a subdued start to second quarter results, particularly in the IT and banking sectors. I did. Rising risks in the Middle East (hospital bombing issue) accelerated the sell-off. Persistent geopolitical tensions weighed on market sentiment, leading to an overall decline. Oil prices rose, with the price of Brent in the UK rising from $83.47 at the close on October 6 to over $93 by Friday night, a major factor for a heavy oil importing country like India.
Similarly, U.S. Treasury yields were set cautiously higher ahead of Thursday’s speech by the Federal Reserve chairman. And policy remained unchanged even after a speech in which financial market liquidity levels would be reduced to keep interest rates high in the economy, fueling the possibility of future interest rate hikes depending on economic indicators. Ending the week at 4.95%, these numbers were similar to levels seen before the 2008 global crisis.
However, it is worth mentioning that bond yields are expected to peak in the coming quarters. The sharp decline in inflation resulted in US monthly CPI of 3.7% in September 2023, down 400 bps from 7.7% in October 2022. Central banks around the world are currently coordinating efforts to slow the economy and raise interest rates by controlling bank liquidity. As a result, bond yields may continue to be higher than long-term trends in the short to medium term.
Regarding Middle East conflicts, wars are predicted to be unsustainable in the long term, given the vast difference in power between the parties, and are today expected to end in short-term stagnation. . However, Israel’s strategy of continuing its long military ambush in Gaza and destroying Hamas’ infrastructure will avoid geopolitical risks in the region and oil prices.
conclusion
Apart from the short- and medium-term impact that the war may have on stock markets, bargain hunting trends have increased in anticipation of festival-led demand and a promising second quarter in India despite potential volatility. It is appropriate to note that result. As earnings season gets into full swing, we are seeing a bottom-up approach to buying, and we expect this to continue. Net selling by FIIs from September to October 18th was INR27,220 cr, easily covered by net purchases through DII. INR33,428 cr. And till date, the Nifty100 index has gained 13% in FY24, lower than the 20-25% earnings growth expected for large-cap stocks. This will be an opportunity to acquire a large-cap stock as the best performer in the coming medium term.
Author Vinod Nair is Head of Research at Geojit Financial Services.
Disclaimer: The views and recommendations above are those of individual analysts or brokerages and not of Mint. We recommend checking with a certified professional before making any investment decisions.
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Updated: October 22, 2023, 7:05 AM IST