Markets may see volatility on Monday as Hormuz tensions escalate again

Indian equities may open lower on Monday as renewed Strait of Hormuz tensions raise concerns over oil prices, global risk sentiment, and the outlook for geopolitical stability

Indian equities are likely to open with a gap down on Monday, as Iran’s decision to reverse its plan to reopen the Strait of Hormuz has raised concerns about the trajectory of peace talks and energy prices.

 

Uncertainties resurfaced after Iran, on Saturday, reasserted its control over the strait after blaming the US for violating a ceasefire agreement by maintaining its own blockade of Iranian ports and firing on vessels attempting to pass the strait. Two Indian-flagged ships had come under fire in the strait during the weekend.

 

Iran had earlier announced it would allow shipping to pass through Hormuz. The current development has dented hopes of a sustained de-escalation, which had buoyed sentiment last week.

 

Indian equities gained for the second straight week on Friday, as easing geopolitical concerns boosted global risk sentiment. The benchmark Nifty 50 and Sensex rose more than 1.2 per cent last week. The week before that, Sensex had surged 5.8 per cent and the Nifty by 5.9 per cent — their strongest performance since February 2021.

 

“Markets could be disappointed on Monday and may give up the gains. If further developments indicate no progress, the market could even fall further. At the moment, developments around the talks and the status of the Strait of Hormuz will matter more for markets than the earnings season. Unless there are major surprises, earnings are unlikely to move the market significantly,” said UR Bhat, cofounder of Alphaniti Fintech. 

 

Bhat added that investors should remain cautious and avoid rushing into positions in the current situation. “These geopolitical developments are difficult to model or predict, and the market has already recovered quite a bit from recent lows. It may be wiser to wait for a clear and conclusive agreement, even if that means buying at slightly higher levels later,” he said.

 

Though a gap-down opening is expected on Monday, the extent of correction will be limited, given the moderation in valuations after the recent correction and ongoing talks.

 

“Markets may open flat or a bit down, but it would not be a major crack as such. Market sentiment has been positive over the last few days. The fresh shutdown could be a negotiation tactic. Major gaps down are unlikely unless a full-scale conflict restarts,” said Ambaresh Baliga, an independent equity analyst.

 

Market direction in the near term would hinge largely on energy prices.

 

“If Brent crude touches $100 per barrel again, we should expect up to a 2 per cent correction in the market in the next couple of days. While the fighting may be over, the economic damage will continue as long as shipping routes remain disrupted. And there are reports that gas infrastructure has been damaged, which could mean shortages persist for an extended period,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers.

 

Foreign Portfolio Investor (FPI) flows will also be watched. While FPIs turned net buyers recently, they have been net sellers to the tune of ₹43,419 crore. FPIs were net buyers of equties worth ₹683 crore on Friday, while domestic institutions were net sellers of shares worth ₹4,722 crore.