Talking Point This Week — Different 'Conflicts'

Global markets have been volatile this week, driven by economic data and geopolitical tensions. The US Federal Reserve's decision to keep interest rates steady has influenced market sentiment, while rising Middle East tensions have sparked concerns about potential disruptions to oil supplies, pushing Brent crude prices above $76 a barrel. In Asia, China's economic indicators have shown mixed signals, with industrial production growth beating expectations but retail sales growth slowing. Meanwhile, conflicting moves were seen in India, where the markets stayed subdued for most part of the week, but Friday saw the Nifty rallying above 25,000, driven by robust economic data and investor optimism. The investor optimism is seen in the way block deals and QIPs are snapped up, and sentiment is not dented despite crude oil moving up.

Here are the key talking points in a 'conflict'-ing week:

Israel And Iran Conflict Continues

The conflict between Israel and Iran continues to escalate, with both sides exchanging missile strikes and drone attacks. Israel's Defence Minister, Israel Katz, has vowed to intensify strikes on Iran, targeting government sites in Tehran and strategic targets, until their goals are reached. Katz has also called for direct action against Iran's Supreme Leader Ayatollah Ali Khamenei, stating he "shouldn't continue to exist". Iran, on the other hand, has warned that the only way to end the war is for Israel to "unconditionally" stop its attacks. The international community, including Russia and the US, are closely monitoring the situation, with Russia warning against striking Iran's Bushehr nuclear power plant, citing a potential "Chernobyl-like" catastrophe. The United States, on its part, has on Thursday said that Donald Trump will decide within two weeks if the US will strike Iran. Remember, earlier in the week, Trump called for the “unconditional surrender” of Iran and alluded to the possible assassination of Khamenei.

No Conflict In Gavekal's Mind About Oil

With youth unemployment at 27%, inflation raging and the currency collapsing, Iran's economic situation is dire. According to Gavekal Research, the question for Israel is whether to destroy Iran's ability to export oil, or wait for the population to revolt. Logic suggests to Gavekal's Charles Gave that the Israelis will seek to destroy Iran's ability to export oil, and so leave the nation with no money to pay their troops. It is, thus, probable that the price of oil will soon hit $100 a barrel, and that as a result stock and bond markets will collapse globally. However, according to Gave, the effect of a general collapse of economic activity globally will raise the chance of regime change in Iran. If such a scenario plays out, expect the oil price to quickly return to $70 a barrel. Can everyone digest such volatility? From an India perspective, Union Petroleum Minister Hardeep Singh Puri allayed concerns about a spike in oil prices amid the Israel-Iran conflict, saying the situation was manageable and energy rates were under control.

Conflicting Takeaways From FOMC

The US Federal Reserve kept interest rates steady, still expecting two cuts in 2025, but a growing divide among policymakers is evident. Seven officials now think there won't be any cuts, up from four in March, while 10 expect at least two rate cuts. On the economy, Jerome Powell said that despite elevated uncertainty, the economy is in a solid position, even as the overall takeaway seems to be that the Fed's assessment is that the economy is growing steadily, but inflation and economic uncertainty remain concerns that will guide their future policy decisions. The divide within the ranks is clear, with policymakers waiting for clarity on Trump's economic policies and their impact on inflation and growth.

No Conflicts On Flows

There is a return to India when it comes to FII investors. When one analyses that data for the first half of June, we see inflows. NDTV Profit has decoded data to tell us which sector has been a key recipient of flows. Financial services stocks saw the highest FPI equity inflows during the first half of June, with net inflows of $544 million, followed by the chemicals sector, which recorded the second-highest FPI inflow at $163 million, followed by oil, gas & consumable fuels at $139 million, and capital goods at $138 million. Fast-moving consumer goods stocks saw the largest FPI equity outflows between June 1 and 15, and even this week, FII desks had sell orders for FMCG names. The FMCG sector was followed by power stocks with $362-million outflow, consumer durables with $220 million, and information technology with $199 million in FPI equity outflows. And some of the positivity on flows is evident in the way large blocks are being absorbed. Both Vishal Mega Mart and Sai Life upsized their blocks and got absorbed with ease!

Lastly, Don't You Wish That You Had Invested?

Hong Kong-based Regencell Bioscience Holding Ltd.'s stock has gone absolutely bonkers, surging over 82,000% since its Feb. 13 low. This crazy jump has boosted CEO Yat-Gai Au's net worth to a whopping $33.3 billion. What's wild is that Regencell is a traditional Chinese medicine company that's never turned a profit since going public. They're working on herbal treatments for ADHD and autism spectrum disorder, but so far, no revenue. Au owns a massive 86% stake in the company and has invested over $9 million. The company was founded in 2014 and has exclusive rights to traditional medicinal formulas developed by Au's father, Sik-Kee Au. The stock's recent surge might be attributed to a 38-for-1 stock split that happened in early June, making the shares more attractive to retail investors. With only 30 million shares publicly traded out of 500 million, even small spikes in demand can cause huge price swings. Some speculate that the growing interest in natural health remedies in the US might have contributed to the surge.

Until Next Time...

Niraj Shah