On Sunday, Saudi Arabia fell 2.5%, Oman 1.6%, and Bahrain 1%. The sell-off in the Gulf market is a sign of what’s in store for other markets, including India, when trading opens on Monday.
“The gap is likely to open on Monday as higher oil prices after the closure of the Strait of Hormuz and turbulence in the Gulf could hurt Indian trade.” Sham Chandak, head of institutional equity at Elios Financial Services, said.
Barclays said Brent crude could hit $100 a barrel, signaling the threat of potential supply disruptions. Fears of a US strike on Iran pushed Brent to a seven-month high of $72.87 on Friday, but markets were hopeful the two countries would resume talks on the long-running nuclear standoff this week after talks remained inconclusive through the weekend. Oil shipments in the Strait of Hormuz – a vital artery connecting the oil-rich Persian Gulf to the open seas – have been largely disrupted since the US-Israeli attack on Iran, halting the voyages of several tankers and Iranian state media warning that the waterway is effectively closed.
“Markets are likely to move from an earnings-driven to an oil-driven business in the near term,” JM Financial Institutional Securities said in a client note. “Indian markets are likely to see a gap opening with higher volatility amid global risk-off sentiment.”
Higher risk aversion could boost gold and silver prices, while increasing demand for the US dollar. When oil prices rise, it creates inflationary pressures, making gold and silver more attractive to investors as hedge funds. Similarly, when oil prices rise, the demand for US dollars generally rises because crude oil is valued in US dollars.
JM said that every dollar increase in crude oil increases India’s annual import bill by $2 billion, putting pressure on the balance of trade. Energy stocks such as Oil India and ONGC, along with defense names such as Hindustan Aeronautics and Bharat Electronics may gain, while oil marketing companies, paints, tires, aviation and chemicals may come under pressure due to higher oil prices.
March season
Historically, March has been a relatively strong month for markets, but this seasonal trend could face some challenges this time around.
“We enter March cautiously despite historically strong positive weather conditions, as global and domestic headwinds weigh on Indian markets,” said Sriram Valivdhan, senior director at IIFL Capital Services.
Over the past decade, the Nifty 50 and Nifty 500 have remained positive in eight out of 10 years, with an average return of 0.8% for both indices, said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services.
If the crisis continues, foreign portfolio investors may reduce their exposure to riskier assets, including emerging markets, Alius Chandak said.
FPIs turned buyers of equities worth $19,782 billion in February after selling in the range of $11,000-34,000 million in the previous three months.
