The shape of things to come for Indian equities this week is anything but calm. Crude price volatility and the conflict between the US and Iran are casting a long shadow over trends. With tensions in the Strait of Hormuz interrupting energy flows and Brent holding above $90/barrel, risk sentiment is thin. All eyes will be on Jackson Hole for some direction.
Why crude and conflict matter now
There is no lasting settlement to speak of since the 60-day US-Iran accord ran its course, leaving energy supply lines in disarray. In the view of analysts, the stand-off has put the Strait of Hormuz on edge and upset the normal order of things. That has propped up crude, making it the external shock of most consequence for India’s markets.
When oil runs hot it has a way of seeping into trade balances and costs, obscuring the visibility of corporate earnings. A shift in the conflict can alter those expectations in short order. Siddhartha Khemka of Motilal Oswal puts it plainly: with Brent anchored above $90/barrel, geopolitical risk is front and centre on traders’ dashboards.
Macro cues: Jackson Hole and US data
One will be looking for policy signals at Jackson Hole to chart the US rate path. Ajit Mishra of Religare Broking says the Fed Chair’s words will be closely followed, as will US GDP and consumer confidence numbers, to see how the Fed is reading growth and inflation.
Then there are the volatile long-dated Treasury yields which have raised the stakes. Ponmudi R from Enrich Money sees global attention zeroing in on three things this week: the Federal Reserve’s trajectory, Nvidia's quarterly showing and the US-Iran impasse. An unexpected turn on any of them could unsettle cross-asset positioning.
What domestic trackers signal
You have to factor in local variables as well. Mishra points to the rupee and foreign institutional flows as the big swing factors. Foreign portfolio investors have been net buyers, putting Rs 23,544 crore into the system so far in August and providing a measure of comfort to sentiment.
This is welcome after a two-week retreat. The BSE Sensex was down 468.42 points (0.60 per cent) last week and the NSE Nifty 114 points (0.46 per cent). Khemka would have the market consolidate from here, perhaps with a modest recovery if oil and geopolitics hold steady.
Near-term market setup
The tape may be defined by the pull between macro headwinds and better domestic flows. Oil is the wild card; a more patient stance from central banks and steady FPI money would do wonders for risk appetite. But for the majority of investors, the aim is to let the trend run rather than take on too much risk.
Positioning this week will be guided by a few immediate watchpoints:
– Where Brent is heading, provided it stays over $90/barrel
– Whether the US-Iran conflict flares or cools
– What the Fed Chair has to say at Jackson Hole
– The US data on GDP, durable goods and confidence
– How the rupee holds up to the dollar
– FPI and domestic liquidity activity
How this could evolve next
A dovish Jackson Hole and a de-escalation of hostilities would likely see cyclicals and rate-sensitive areas find their footing first. Put a hawkish spin on it or stir up trouble near the Strait of Hormuz and you will see volatility return to the high-beta names.
The base case for the moment is consolidation punctuated by events. As the analysts would have it, the rhythm of the market is set by crude and the US-Iran dynamic, with the Fed providing the global undertone. Under these circumstances, good risk management is of more value than trying to call the direction.
