Direction of conflict, foreign investors to influence Dalal Street

MUMBAI: As the global markets enter the fourth week of the war in West Asia, in the domestic market oil & gas, banking and auto stocks are expected to be the main focus of Dalal Street investors in the new but truncated trading week. During the first three weeks, as crude oil prices jumped about 50% from the pre-war levels, these were also the sectors that were hammered the most, BSE data showed. Consider this: Between Feb 27, the day before the war between the US-Israel and Iran started, and Mar 20, BSE's PSU banking index has lost nearly 13%, the all banking index almost 12%, the oil & gas index 12.2% and the auto index is down 12.1%.

At the other end of the spectrum, BSE's clean environment index was up 2.6% while the utilities index was up a marginal 0.4% and the power index closed just 0.6% down.

Market players feel in the new week, trading trends by foreign funds and the trajectory of the rupee, especially against the dollar, would determine in which direction the two leading indices - sensex and Nifty go. And these two vital factors would be decided by the direction of the war in West Asia.

On Friday, while the sensex closed at 74,533 points, down 8.3% since the war started, nifty has lost 7% to close at 23,115 points.

According to media reports, the war in West Asia has taken a turn in favour of Iran. Although the US has given a 48-hour deadline to Iran to open the Strait of Hormuz, a vital link for the global energy supply chain, Iran has declined to do so.

Market players feel this may complicate the old crude oil and natural gas market, keeping prices elevated.

Late on Friday, as Brent crude price rallied closer to the $110/barrel level, after initially dipping towards the $100 level early in the session. As a result of the late rally, in the US, Dow Jones index closed 1% lower, the Nasdaq Composite 2% and the S& was down 1.5%. Earlier in the session as oil prices dipped, the sensex closed 326 points or 0.4% higher.

According to Ajit Mishra, SVP - research, Religare Broking, the upcoming week is expected to remain data-sensitive amid ongoing global uncertainties. "Developments in the West Asia conflict and movements in crude oil prices will continue to act as key external drivers and are likely to dictate the near-term market trend," Mishra wrote in a note.

"On the domestic front, investors will closely monitor HSBC Flash PMI data for manufacturing, services, and Composite segments, which will provide an early indication of business activity trends. Additionally, Industrial Production data will be tracked for insights into the strength of economic momentum."

As regards FPI selling, market players are surprised at the speed of selling from stocks (over Rs 93,600 crore net outflow in March so far). "The complete negative stance of the FPIs towards India is evident from the fact that they are selling recklessly without regard for valuations," said V K Vijayakumar, chief investment strategist, Geojit Investments. "

A reversal of FPI selling will happen only when the war ends and normalcy returns to the market."



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