Tension continues to escalate across West Asia as the conflict between Iran and Israel sees no resolution. Decidedly this has a domino impact on global asset classes. Be it commodities like crude and gold or equity markets, there is a definitive sense of caution and risk aversion. What should be your strategy and what’s the outlook for the market?
Investors should guard themselves as uncertainty is high. They can look at IT stocks as TCS posted better-than-expected results and a promising outlook for FY25. Also, banking stocks will show strength due to fair valuation and since their results will be good, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
“Signals from the crude market indicate that the Iran-Israel conflict is unlikely to escalate,” added Vijayakumar. Also, President Biden indicated that he doesn’t support Israeli retaliation. So, the situation may calm down.
Market participants will be keeping an eye on earnings reports from Infosys, Bajaj Auto, and Wipro later in the week. TCS earnings were slightly better than expectations.
“The escalation in the potential conflict between Iran & Israel is a serious development and will likely adversely impact oil pricing. The Indian markets will be pressured over the short term as well. However, the Indian economy’s strong fundamentals and growth trajectory remain firmly in place over the long term,” said Samir Bahl, Chief Executive Officer of Investment Banking at Anand Rathi Advisors.
“On the macroeconomic front, China’s GDP data, US retail sales figures, and movements in US bond yields clubbed with the dollar index will be important factors influencing market sentiment,” said Santosh Meena, Head of Research at Swastika Investmart.
The major risk of the conflict is that there can be a further spike in crude oil prices leading to an increase in inflation. Also, it can impact the expectation of interest rate cuts by central banks globally, which is built into equity market valuations. “Hence investors should be conscious of the risk of interest rates remaining high for longer than earlier envisaged,” said Bino Pathiparampil, Head of Research at Elara Capital.
If commodities go out of the roof then it will have a major impact on the emerging economies as inflation will remain high for developed markets, thereby the rate cut will get delayed, impacting equities considerably and will result in currency weakness and outflows from Foreign Institutional Investors, said Shrikant Chouhan Executive Vice President and Head of Equity Research at Kotak Securities.
However, any significant escalation in tensions could trigger panic selling and volatility in global equity markets, said traders.