Markets Faced Pressure Due To Risk-Off Sentiment Amid Iran-Israel Tensions: Analysts

The geopolitical situation changed drastically over the weekend as the tensions between Iran and Israel escalated. The stocks could have seen a rally due to the release of the Bharatiya Janata Party's manifesto, but the markets were in the red as the Middle East turmoil raised caution, according to analysts.

"What we are seeing is that there is some risk-off sentiment that is increasing, that is only accentuated with what has happened over the weekend in terms of the geopolitical issues," Siddhartha Khemka, head of retail research, broking and distribution at Motilal Oswal Financial Services Ltd.

After the release of the BJP manifesto, domestic-focused stocks and sectors would have seen a huge run-up in the market on Monday if not for the geopolitical issues. The domestic themes are being tracked by many investors due to the Lok Sabha election, according to Khemka.

There can be short-term exit by foreign investors if the Israel-Iran situation keeps escalating, according to Jigar Mistry, co-founder of Buoyant Capital. "They can only sell what they own, which is largely the banking sector, which should probably be why you are seeing a large cut there despite no apparent impact on shorter term for these banks," he said.

It was "only a matter of time" before the markets corrected. The uptrend in gold prices and the dollar index moving up after a breakout were signs that the equity market would be under pressure, according to Hemen Kapadia, senior vice president of institutional equity at KRChoksey.

While the markets were in the red, companies like Oil and Natural Gas Corp. and Oil India Ltd. were in green. The increasing production in ONGC and Oil India, stability in oil prices and crude consolidation are few of the reasons why Khemka is positive for both and sees growth in these companies.

Both Khemka and Kapadia had a cautious approach for Exide Industries Ltd. While the company's auto segment is seeing a leg up, Khemka said he would like to wait for the fourth-quarter result and then see if there is room for upside. Looking at the stock run-up, Kapadia said there was a need for a check as the risk-reward ratio was not in favour.

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