US - Iran ceasefire & markets: How brokerages interpret the developments

Indian stock markets lost ground on Thursday, a day after witnessing their best single-day rally since March 2021. The fall on Thursday was in line with most Asian markets that dipped after Iran accused the US of violating the ceasefire agreement. 

 

Here's how leading brokerages have interpreted the recent developments in West Asia and their likely impact on stock markets and crude oil prices.

 

Rabobank International

 

The war certainly does not seem to be over, given Iran’s decision to close the Strait of Hormuz again, citing Israel’s “breach.” Markets are awaiting a response from the White House. A ceasefire announcement that is well-received by the market could soothe markets and inflationary expectations, as well as depress the price of oil—which it has done for the time being. 

 

 

Should the Trump Administration choose to ramp up offensive measures in two weeks, it’s possible that the jump in prices may be somewhat mitigated, as we’re bouncing off of a suppressed crude level of $94/bbl, as opposed to the $110/bbl level we were at earlier in the week. 

 

Bernstein

 

This is not the end of the conflict, but is this the end of the crazy period of escalations. We believe the end to hostilities will mark a gradual reversal in many areas, some which are heavily beaten down by FII exits like financials - which remains a longer term play. 

 

A short term reprieve should be evident across all sectors that are specifically vulnerable to crude: chemicals, aviation, logistics, paints and pharma, energy (OMCs) to an extent. We still don’t see a significant reason for FIIs to come back in droves or crude to improve materially below $85-90. Our strategy continues in a similar fashion. 

 

We would invest in the rebound through financials as a more durable play and, for the short term, have some risk exposures to the most impacted sectors. We remain neutral on Nifty with year-end target of 26,000 levels.   

 

Morgan Stanley

 

With the conflict likely ended, the debate on India’s AI exposure will resurface. The lack of direct AI play seems to be the most persistent challenge with potential AI disruption for Indian services exports aggravating matters.

 

Market plumbing remains an issue – passive money needs to keep selling to keep pace with India’s falling index weight and hedge funds favour India as a funding short.

 

Our BSE Sensex target of 95,000 implies an upside potential of 22 per cent through December 2026. This level suggests the Sensex would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x. 

  deVere Group  

The markets are being driven by relief, not resolution (to the West Asia conflict). The rally was getting ahead of reality. The structural drivers of volatility across West Asia remain in place, and the timeline for any lasting agreement remains uncertain. Markets are celebrating a pause in hostilities, but the underlying conditions that drove oil higher and equities lower have not been removed. They have simply been deferred.

 

Investors should treat any up move in the markets with caution. The upside from relief may be limited, but the downside from renewed escalation remains significant and immediate.  Missiles are still being launched in the Gulf, Israel is still engaged on another front, and yet markets are behaving as though the region has normalised. 

 

S&P Global Energy

 

The market shouldn't assume an immediate return to pre-crisis conditions. Presuming traffic begins to flow through Hormuz, trade flow normalization will take months. Demand destruction—already underway—will likely continue despite the ceasefire. The bigger concern is what happens after reopening. It is likely that Hormuz will face persistent threats (Houthis, other proxy forces) for the foreseeable future.

 

The two-week ceasefire between the US and Iran is bearish for global natural gas and LNG prices as it is the strongest indication of halting the conflict so far, but a final agreement is still pending and there are many variables around a full reopening of the Strait of Hormuz.

 

Geojit Investments

 

With fair valuations in the market now, if the West Asian ceasefire holds, the market will remain resilient. But there are some concerns surrounding Israeli attack on Lebanon and its fallout on the ceasefire. If crude again spikes in response to this development, the uptrend witnessed on Wednesday will be at risk of losing stream. The big takeaway from the rally in the market on Wednesday is that fairly valued stocks depressed by FPI selling and shorting will bounce back at any time. Patience is the key.