Stock Market Crash: The geopolitical tensions in the Middle East boiled intensely as Israel launched dozens of attacks on Iran's military and nuclear facilities on June 13. Iran retaliated with 100 drone attacks on the Jewish-majority nation. The two countries are on the brink of war once again! But why did this geopolitical risk push the Indian stock market into a frenzy of selling on Friday? And will the trend continue next week?
Middle East War:
The Benjamin Netanyahu-led Israel shocked Iran by attacking its major nuclear and military bases overnight, killing several top officials on Iranian soil. Among them were also chief of its Revolutionary Guards Hossein Salami, Gen. Mohammad Bagheri the head of Iran's armed forces, and Gen. Amir Ali Hajizadeh, the head of the Revolutionary Guard's missile programme, as per Iran's local media. Iran called Israel's bold action a 'foolish act' and a 'declaration of war'. Iran warned both Israel and the USA, warning them to retaliate severely.
In the late afternoon of June 13, Iran did hit back, by launching approximately 100 drones towards Israel.
Surprisingly, US President Donald Trump had earlier this week, intimated about the possibility of an attack from Israel on Iran.
After the attack on Iran, Trump said that the Islamic Republic of Iran brought the attack on itself from Israel, after shrugging off US demands to restrict its nuclear programme. Trump warned that the next already planned attack could likely be brutal, but did not reveal many details.
The US has announced that they have no part in Israel's latest military operation, while Russia and other European countries called Israel's action 'unprovoked' and 'unacceptable'.
While the world was shaken, Israel however predicted a retaliation from Tehran on Friday and has accordingly shut down many embassies for safety precautions. Israel's iron dome continues to be active and well-equipped.
Bears Topple Global Market:
On June 13, Japan's Nikkei 225, China's Shanghai, Hong Kong's Hang Seng, South Korea's KOSPI and Australia's ASX/200 indexes plunged by 1% each. Taiwan and Malaysian shares also dropped significantly.
Overnight, Wall Street crashed sharply with Dow Jones falling by 1.8% to 42,197.79, followed by a 1.3% decline in Nasdaq to 19,406.83, and a 1.13% slip in S&P 500 which ended at 5,976.97. European benchmarks like CAC and DAX shed more than 1% each, while FTSE dipped by 0.4%.
"Rising tensions in the Middle East after Israel attacked key Iranian areas drove investors to safe-haven assets like gold as riskier equities continued to face battering. Along with fresh concerns of the US likely to impose unilateral tariffs over next few weeks and higher valuations of domestic equities resulted in consolidation of markets," said Prashanth Tapse, Senior VP (Research), Mehta Equities.
What happened with Sensex, and Nifty?
Following the trend of its global counterparts, the Indian stock market nosedived as well. On Friday, Sensex closed at 81,118.60, down by 573.38 points or 0.7%, while Nifty 50 plunged by 169.60 points or 0.68% to finish at 24,718.60. Broadly, the June 9-13 weekly session was bearish for domestic equities, with Sensex contracting by 1,370.64 points or 1.66% and Nifty 50 plummeting by 375.30 points or 1.5%.
FIIs were also net sellers during the week. After being buyers on June 9 and June 10 with inflows of Rs 1,992.87 crore and Rs 2,301.87 crore, FIIs emerged net sellers from June 11 onward. On June 11, they sold up to Rs 446.31 crore in Indian equities, while their biggest-single day sale in the week, was on June 12 with an outflow of Rs 3,831.42 crore. Further, FIIs sold Rs 1,263.52 crore on June 13.
DIIs, however, have continued to curb the impact of sharp selloffs from FIIs in Indian stocks. Domestic institutional investors bought Rs 3,503.79 crore worth of equities on June 9, while their inflows were at Rs 1,113.34 crore on June 10, Rs 1,584.87 crore on June 11 and Rs 3,041.44 crore on June 13. The highest single-day buying in the week was on June 13, to the tune of Rs 9,393.85 crore.
What triggered Sensex and Nifty?
According to Siddhartha Khemka, Head - Research, Wealth Management, Motilal Oswal Financial Services, the sharp rise in crude prices weighed on the Indian Rupee and led to selling pressure in OMCs, paints, tyres and lubricant stocks. Conversely, shares of upstream oil companies ended with moderate gains; while defence stocks surged significantly amid heightened geo-political tension, pushing Nifty India Defence index up by 1.5%. The FIIs offloaded shares worth Rs3,831 crore on Thursday- their second consecutive day of selling, adding to negative market sentiments. Broader markets also showcased weakness, with Nifty Midcap100 and Smallcap100 down 0.6% each. Aviation stocks witnessed sharp fall after a tragic plane crash in Ahmedabad on Thursday, triggered fear among investors. Auto ancillary stocks declined after U.S. President Donald Trump signalled the possibility of raising tariffs on imported vehicles.
What Should Traders Do In Indian Stock Market Amid Latest Geopolitical Tensions Between Iran and Israel?
"Any fresh upsurge in the conflict could spark a sell-off across global equities, including Indian markets and trigger foreign fund outflows from domestic equities, with FIIs already selling shares worth over Rs 4,000 crore in the previous two sessions," said Ketan Vikam, Head of Sales at Almondz Institutional Equities.
The tensions have heightened! Naveen Vyas, Senior Vice President, Anand Rathi Global Finance said, since India relies on imports for over 80% of its crude oil needs, a conflict between Iran and Israel could lead to a spike in Brent crude prices. Iran holds about 9% of the world's oil reserves, and any disruption could impact several key Indian sectors, including oil marketing companies (such as BPCL, HPCL, and IOC), paints (like Asian Paints and Berger Paints), as well as the automobile and cement industries. These sectors may experience demand slowdown or margin pressure if tensions escalate and persist for more than 3-6 months, particularly if Brent crude prices rise above the USD 82-85 per barrel mark.
Technically, the Ajit Mishra - SVP, Research, Religare Broking said, "Nifty has once again approached the support zone of its short-term moving average - the 20-day EMA - which currently lies around the 24,800 mark. A decisive break below this level could lead the index back into a consolidation phase. Given the prevailing uncertainty, we recommend maintaining strict stop-losses in short-term trades, particularly in the midcap and smallcap space. It is also advisable to avoid aggressive long positions until a clearer directional trend emerges."
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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