Markets had begun to roll on expected lines and the breadth was improving as well, till Thursday/Friday when US President Donald Trump had a top commander of Iran and others killed through a drone attack. Markets fell globally and suddenly a positive and feel good atmosphere has been vitiated.
BSE Sensex lost 110.53 points or 0.27 per cent to close at 41,464.61 points. It had earlier made a lifetime high of 41,649.29 points on Thursday. NIFTY lost 19.15 points or 0.16 per cent to close at 12,226.65 points. Like BSE Sensex, NIFTY too made a new lifetime high of 12,289.90 points before losing ground.
The broader markets saw BSE100 lose 0.06 per cent, while the BSE200 and BSE500 gained 0.08 per cent and 0.32 per cent, respectively. BSEMIDCAP gained 1.24 per cent, while BSESMALLCAP was up 3.26 per cent.
Dow Jones lost 10.38 points or 0.04 per cent to close at 28,634.88 points. Incidentally even the Dow made a new lifetime high of 28,872.80 points.
The Indian Rupee lost ground on Friday post the attack and lost 44 paisa or 0.62 per cent to close at Rs 71.80 to the US dollar.
In 2011, Trump had said that former President Bill Clinton would start a war with Iran to help him win the upcoming elections. Whether Trump has done the same or something different one wonders.
The trade war issue with China which lasted over a year is probably and hopefully coming to an end and now this new escalation? The US would be electing their new President in the later half of this calendar year. Whether this is a diversionary tactic for the upcoming impeachment hearing or election gimmick or both, only time will tell. However, it would impact global markets adversely.
Oil prices have begun to rise post the event and they would hit all oil importing countries including India. The irony is that it would benefit the oil producing states which include Iran and others in the Gulf region. Further there is a small portion of sea known as Gulf of Hormuz which is controlled by Iran and from where over a fourth of world’s crude passes on a daily basis. The situation between Iran and US has become very fluid and would be tracked on a daily basis as escalation is likely to rise. India is closely aligned to Iran and does have friendly relations with them but if the gulf becomes messy, one is not sure how things would pan out.
Tata Sons and Ratan Tata have filed petitions in the Supreme Court requesting urgent hearing against NCLAT order of restoring Cyrus Mistry. The order of NCLAT has been challenged on the ground that it has gone beyond relief asked for by Cyrus Mistry. It is expected that Supreme Court would take up the matter when they resume this week after their vacation.
FII’s or FPI’s as they are now known were big buyers in 2019. They invested over Rs 1.01 lakh crore in calendar year 2019. Taking a rough dollar equivalent of Rs 71, it means a net investment of over 14 billion dollars. This figure is the highest over the last five years if not more. This is despite the fact that India has not been a better performing market in global markets.
The week ahead would closely follow developments on the Iran-US front. With Iran issuing very strong condemnation of the attack and threatening stern retaliation, one wonders in what form it would be. The world response would also be crucial to the ongoing dispute which seemed to be resolving with US diluting sanctions on Iran in the previous fortnight.
While markets would be nervous and cautious it does not mean that they would lose ground significantly. They would consolidate and take cues from the news flow from the two countries. While an Iran retaliation is given, the real issue would be to see what US does in reply to that. Do they talk or it becomes tit for tat? Knowing Trump, the latter is imminent.
The best advice would be to lighten positions and use sharp dips to buy and strong rallies to sell. Markets are in a buoyant mood and probably this issue could help to cool them of.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)