Stock market indices fell nearly 2 per cent on Monday. Though the rising US-Iran tension was the immediate cause, investor sentiment in the coming weeks is expected to be impacted more by the upcoming Union Budget and the actions of the US Federal Reserve.
The Sensex fell 787 points, or 1.9 per cent, and the Nifty was down 233 points, or 1.91 per cent, as crude prices surged with the escalating tension in West Asia post the killing of Iran’s top military general by the US.
This prompted equity traders to off-load stocks. This was Sensex’s worst decline since September 3.
Most major global markets trading in the red also cast a shadow.
The fear gauge, India VIX, soared 10.48 per cent to 12.69. Investor wealth tumbled by ₹3.11-lakh crore in two successive sessions of decline in the equity market following the escalation in West Asia
Equity traders fear a spike in crude oil price can hurt India’s fiscal deficit and stoke inflation.
But a Goldman Sachs report ruled out any disruption to global oil supplies and, hence, a spike in prices.
Also, further capitulation in small and mid-cap stocks is unlikely as they are trading near their 21-month low.
‘Fears overblown’
Even as Tehran rescinded the nuclear deal and threatened revenge prompting Washington to warn of strike-backs, experts told BusinessLine that Monday’s fall was similar to that in September 2019 when markets crashed after Saudi Aramco drone attack. But equity benchmark’s globally hit new highs within weeks as the Aramco incident soon faded from market memory.
“We reckon geopolitical concern should ease in coming weeks. We are in the middle of a global ‘risk-on’ trade and an uptrend should resume. Focus is on local issues, the economy and the Budget,” said Amar Ambani, President, Head of Research, YES Securities.
Markets expect the Finance Minister to cut sharply the personal income-tax rate in a move to revive demand in the economy.
Meanwhile, the US Fed is considering buying treasuries with coupon which, observers say, is quantitative easing. The Fed is currently managing interest rates by expanding the bond portfolio, which is another stimulus measure.