The escalation in the Iran-Israel conflict, is likely to weigh on the stock markets on Monday. Most participants expect the markets to open with a gap down.

Nilesh Shah, MD, Kotak Mutual Fund, while warning traders to be extremely cautious, said: “Indian markets find themselves in a peculiar situation, with domestic factors supporting current valuations for long-term investors while global factors like US President Donald Trump’s policies and oil prices are keeping them on the edge.”

Dhiraj Relli, MD, HDFC Securities, believes that domestic markets may respond unfavourably and open lower by approximately half a percentage point to one percentage point before attempting to recover.

Investment analyst Arun Kejriwal sees the market opening with a gap down, drying up the optimism generated after Friday’s trading. He believes that the market will probably be in no man’s land for at least the next few trading sessions.

Relli said this development could propel oil prices to even greater heights while triggering an immediate flight to safety, as investors evaluate how this latest escalation might cascade through the interconnected global economy. And one cannot discount the possibility of unpredictable contagion effects across global markets should hostilities continue to intensify.

All the experts believe that the action around crude oil prices and availability will be carefully watched by markets, as a country like India which imports the majority of its requirements will come under duress.

Relli said crude oil prices have already surged dramatically amid heightened West Asian tensions. Brent crude has rallied more than 15% to reach $77 per barrel, while WTI crude has jumped 17% to $74.90 over the past eight sessions. “Additional spikes in oil prices or supply chain disruptions could materially undermine investor confidence across markets.”

“India has enough forex reserves to manage higher oil prices in double digits. However, if prices cross triple-digits or supply gets restricted, there will be an adverse impact on markets,” Shah said.

According to Kejriwal, this would be a good time for investors to lie low since Indian markets have had a decent run in the last couple of months. “Don’t sell aggressively, or try doing value buys for some time. Anyway, the results season will start in the next 20 days, when one can get a better idea of how India Inc is doing.”

Shah, however, believes that investors can use the correction as an opportunity to accumulate.

Interestingly, the initial response in West Asian stock markets, which operate on Sundays, suggests that investors were preliminarily adopting a relatively optimistic outlook. Israeli equities opened higher following the US strikes against Iran, with the Tel Aviv 125 index advancing 1% to establish a new record high.