The drone attack on Saudi Arabia’s state-owned Aramco saw a massive spike in global crude oil prices leading to a panic reaction in stock markets on Tuesday, with the Sensex fa lling by 642 points or 1.73 per cent to close at 36,481. Nifty, the broader index, too fell by 185 points or 1.69 per cent to 10,817.

However, the US Federal Reserve’s anticipated rate cut on Wednesday will determine how the markets will behave in the coming days. It is this event and not the Saudi drone attack that will drive the global equity markets in the coming days, experts told BusinessLine .

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Another key factor that may impact markets is the holding of short positions in F&O by foreign portfolio investors (FPIs). They are holding more than 1.2 lakh contracts of total short positions in the F&O segment on the NSE, which is just around 15,000 contracts shot of record levels. This indicates that further sharp slide in the markets could be arrested as large traders come to cover their shorts, experts say.

“There is too much fear and pessimism in markets, which is reflected in the FPI short positions. A key rule is that markets don’t fall when everybody is bearish. Factors such as easing of interest rates by the US, Europe, China and most countries around the world suggest an easing liquidity situation. Also, India is cutting interest rates and the government is making weekly stimulus announcements. All these are not getting registered as the sentiments are low. But that cannot be permanent,” said Rohit Srivastava, founder and chief strategist, IndiaCharts.

The Sensex and the Nifty are down by about 13-15 per cent from their highs, but small and mid-cap stocks are down 50-70 per cent.

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