Sensex tanks 900 pts amid geopolitical concerns; Time to buy the dips?

The Indian stock markets opened on a weak note on Monday amid escalating geopolitical tensions between Israel and Iran. The S&P BSE Sensex slipped nearly 930 points in intra-day trade to 73,315.16 levels, while the Nifty 50 index lost 255 points to hit a low of 22.263.55 in Monday's deals. However, both the benchmarks recovered some losses as the day progressed.

"There are many headwinds that are weighing on the markets today: the renewed conflict in the Middle East, proposed changes in the India-Mauritius tax treaty & the hotter-than-expected US inflation are negatives. But partly these negatives are in the price since a retaliation from Iran was expected and the higher US inflation was discounted by the market on Friday,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

As of 10:08 am, the BSE Sensex was trading 0.75 per cent lower a 73,689.27, and the NSE Nifty50 was down by 0.72 per cent at 22,357.25 levels.

The downward trend was not limited to India; it was reflected across the Asia-Pacific region. Japan's Nikkei plunged 0.93 per cent to 39,157.45 levels, while Korea's KOSPI traded 0.86 per cent lower at 2,657.82, as of 9:29 am. The ASX 200 in Australia also saw a dip of 0.38 per cent, trading at 7,758.30 levels.

Oil prices

While oil prices remained relatively stable, with Brent crude futures trading down by 0.14 per cent at $90.32 per barrel and US West Texas Intermediate futures down by 0.32 per cent at $85.39, the broader market sentiment was impacted.

“Signals from the crude market indicate that the Iran-Israel conflict is unlikely to escalate. President Biden has clearly indicated that he doesn’t support Israeli retaliation. So, the situation may calm down. However, investors have to be guarded since the element of uncertainty is high during a tense situation like this,” said Vijayakumar.

So, should you buy the dips or is there more downside?

Analysts expect volatility to continue amid rising geopolitical tensions. The technical setup, analysts said, suggests investors should remain cautious and avoid catching the falling knife.

"Prices have precisely retreated from the upper boundary of the 'RISING CHANNEL' pattern, a formation we highlighted earlier during the week. Accompanied by a 'Two-Point Negative Divergence' on the relative strength indicator (RSI) smoothened indicator, a cautious approach is advisable for bulls camp at higher levels. Traders should refrain from chasing buying opportunities at elevated levels and are encouraged to consider profit-booking on any bounce back," said Sameet Chavan, head of technical and derivative research at Angel One.

For the Nifty 50 index, 22,700 to 22,800 levels present significant resistance.

"Conversely, key indices hover slightly above their previous swing high, technically considered as a support level. For Nifty, this lies within the range of 22500 to 22450, and a breach may trigger further profit booking, potentially towards 22300 and beyond in the near term," Chavan said.

Fundamental analysts, too, remain in a wait-and-watch mode and expect the global markets, including India, to remain choppy. A correction, they believe, is a good opportunity to buy quality stocks from a medium-to-long term perspective.

"We expect global markets to remain weak in the short-term. Eventually, the war between Israel and Iran may stop, or attacks on each other may continue for a prolonged time and the global markets may live with that, as is the case with the Ukraine war. Any steep correction in the quality stocks would be an opportunity in the short-term. However, we continued to suggest allocating 50 per cent of equity assets to large caps and the rest 50 per cent to quality small and mid-cap stocks. That said, we are not panicking on the global political developments yet," said G Chokkalingam, founder and head of research at Equinomics Research.