How Indian Stock Market should react to US Strike on Iranian General.


4 min read
How Indian Stock Market should react to US Strike on Iranian General.

What Happened?

The U.S. assassinated a high-ranking Iranian official in a targeted airstrike at Baghdad International Airport in Iraq early Friday (local time). The strike killed Qassem Soleimani, a top Iranian general with the Islamic Revolutionary Guard Corps, as well as at least seven other people.

Soleimani, 62, was widely seen as the second most powerful figure in Iran behind the Ayatollah Khamenei (Supreme Leader of Iran). His Quds Force, an elite unit of the Iranian Revolutionary Guards, reported directly to the Ayatollah and he was hailed as a heroic national figure.

Iran has vowed to retaliate against the United States. The U.S. embassy issued a security alert on Friday urging all American citizens to “depart Iraq immediately.”

US Secretary of State Mike Pompeo said Soleimani was planning new attacks against U.S. diplomats in the region and stressed that Washington is committed to de-escalation. Iraq’s politicians have roundly condemned the strike, describing it as both a violation of its sovereignty and the agreement allowing U.S. forces in the country.

Trump tweeted:

What is the current situation of Stock Markets around the world?

The escalating geopolitical tensions in the Middle East quickly derailed global stock markets’ strong start to 2020.

  • The Dow Jones Industrial Average traded 180 points lower, or 0.6%. The S&P 500 slid 0.5% along with the Nasdaq Composite. The Dow briefly dropped more than 360 points at the open.
  • The Stoxx Europe 600 fell by 0.4% and Hong Kong’s Hang Seng index by 0.3%,
  • Oil prices surged over 4% in international markets.
  • The black gold rallied more than 35% in the domestic market in 2019.
  • Domestic equity benchmarks Sensex and Nifty declined a quarter percent in early trade.

The current situation of India (internal)

India is already suffering from its internal issues and this news acted as salt on the burn. Think about it.

India imports 83% of its oil needs so it threatens to not only derail India’s bull market but also disturb the government’s fiscal arithmetic, should it lead to a spike in crude oil prices as is being speculated.

As Qassem Soleimani was extremely close to the Iranian Supreme Leader. Iran will certainly retaliate and oil price likely to surge. Of course, It’s bad news for large oil-importing countries, especially those like India, which run large trade and current account deficits. Most of the sectors like Cement, Aviation, Tyres, Transportation are Crude driven.

  • India’s fiscal deficit reached an alarming level at the end of November at 114.8% of the budgeted target for the financial year, highlighting the challenge the government faces in meeting its fiscal goals.
  • The deficit, or the gap between the government’s total receipts and expenditure, reached Rs 8.07 lakh crore as of November 30, official data showed last week.
  • Current account deficit (CAD) — the gap between the value of total imports and aggregate exports — narrowed to 0.9% of GDP, or $6.3 billion, in the September 2019 quarter, on account of a lower trade deficit. It stood at 2.9% of GDP, or $19 billion, in the corresponding quarter of 2018–19. It was 2% of GDP, or $14.2 billion, in June quarter, 2019.

What’s ahead and What Investors should do?

Most of the time, when the market is panicking about something that is dominating the news like this, it has been a buying opportunity, and the fact that we keep hitting record highs suggests that that has worked out pretty well.

In the short-term, Yes, you should wait to invest, as there will probably be more headlines to come involving possible reactions to the strike, but neither the drop nor the bounce is reason to sell either. The volatility will provide the opportunity for intraday traders, but for most investors, the best reaction to this news, as is usually the case, is no reaction.

It is not a time to panic in market terms. There have been many such instances in the last few years that have brought the threat of massive retaliation, but ultimately, the targeted countries and organizations know that an all-out war would be just about unwinnable.

Indian market is already in the bull’s control and bear market only starts after Death cross.

To see things this way, you have to remove the emotion from your analysis.
Wait for some time and search for major buying opportunities if the market plunges further.

Akshay Seth
Linkedin | Twitter
akshay.equity@gmail.com

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