Tighter margins and currency volatility would be the order of the day
The US and Israel's joint strikes on Iran and the response by the Islamic nation, whose supreme leader Ayatollah Khamenei was killed, have triggered anxiety among investors, worried about the effects the conflict would have on the markets today.
Here's your cheatsheet to this big story
- The concerns over extreme market volatility are mainly due to disruption in shipping and oil cargo in the Strait of Hormuz, which serves as a strategic route for oil trade, specifically for Asian countries.
- Today's domestic market opening would be one of the most geopolitically charged in recent years simply because a huge chunk of India's crude buys pass through the Strait of Hormuz.
- A combination of a sharp spike in crude oil price in addition to the shipping lane crisis, foreign outflows and a big global risk-off sentiment strongly suggest a weak, gap-down and high-volatility opening for India's markets - Sensex and Nifty.
- There is also institutional selling pressure, which suggests there would be a near certain prediction of extreme volatility today.
- Investors may consider getting prepared to face sudden swings in intraday trades before making financially critical decisions.
- All sectors that use oil as its primary raw material and sensitive to oil price movements will influence how the markets behave today. These sectors include aviation, paint, chemical, logistics, automobiles, and oil marketing companies, or OMCs.
- If past trends are any indication, some kind of protection may be offered by selective buying in pharma, FMCG and healthcare, which may soften the blow dealt by the latest conflict in the Middle East.
- It would be very difficult to stay optimistic on market performance due to the uncertainty as a result of the Strait of Hormuz crisis, missile attacks on oil tankers, wild swing in crude prices, and people cancelling flights en masse across the affected region in the Gulf.
- It would be safe to assume that the sectors that would face the biggest risks today are aviation, OMCs, paints and chemicals, logistics and shipping, and tyre manufacturing.
- Those that are not completely out of the woods but are also not at the highest risk could be auto manufacturers, and sectors linked to large-volume exports such as gems, textiles and engineering. Any asset linked to gold, metals, and pharma and healthcare could provide some safety from the tumultuous swings in the markets.
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