Middle East flares may weigh down markets

Pumped up by US President Trump's statement about decision of US direct involvement in the Israel-Iran conflict in next two weeks, the strong rally on Friday helped market erase previous few sessions losses to close on optimism.
For the week, the BSE Sensex index added 1,289.57 points or 1.58 per cent to finish at 82,408.17, and on the NSE, the Nifty gained 393.8 points or 1.59 per cent to end at 25,112.40. Broader markets underperformed benchmark indices, the BSE Mid-cap Index was down 0.4 per cent and the BSE Small-cap index shed nearly 2 per cent. Sector wise, Nifty Private Bank index rose 1.6 per cent, Nifty Auto index added 1.5 per cent, Nifty Information Technology index rose 1.3 per cent. However, Nifty Media index shed 3 per cent and Nifty Pharma index fell 1.7 per cent, Nifty Metal and PSU Bank indices shed 1.3 per cent each.
FIIs snapped four week selling with purchases of equities worth Rs 8,709.60 crore in current week. DIIs continued their buying for ninth straight week with purchases of equities worth Rs 12,635.58 crore. Domestic factors such as a decline in India's wholesale inflation and the RBI's relaxation of lending norms supported the market's upward momentum amid Middle East concerns. The rupee witnessed a sharp fall last week. The fall to 86.60 on the Indian rupee (86.59) has happened much faster than expected. Rise in crude oil prices on the back of the ongoing Israel-Iran conflict is weighing on the domestic currency.
The US Federal Reserve meeting last week largely turned out to be a non-event for the markets. The Fed kept the rates unchanged at 4.25-4.5 per cent. It also retained its forecast for another 50-basis points rate cuts for the rest of the year. However, the central bank had revised its inflation forecast higher. The higher revision has been attributed to the uncertainty prevailing over the impacts of higher tariffs. Weekend factors like US B-2 Bombers making incursions into Iran and with Israel and Iran continuing to exchange missile strikes will cast shadow on markets when markets open in the coming week.
Looking ahead, traders may brace for heightened volatility as geopolitical tensions remain elevated. Iran has launched a retaliatory wave of missiles toward Israel, hours after U.S. airstrikes targeted its nuclear facilities in Fordow, Natanz, and Isfahan; and Iran's foreign minister stated that Tehran is willing to consider diplomacy only once Israel halts its aggression. Watch carefully the developments because of its impact on international crude oil prices.
IPO Corner: After a long time, the primary market is going to see some intense action in a 'energetic week' with 13 (IPOs) hitting the D-Street. The companies will be raising nearly Rs 16,000 crore during the week, with five mainboard public issues up for grabs. The positive broader picture of the equity market, despite near-term concerns led by the Middle East and tariff-driven volatility, appears to be the reason for strong primary market action.
Mumbai-based real estate developer Kalpataru is slated to raise Rs 1,590 crore via IPO. The IPO price band has been set at Rs 387 to Rs 414.
New Delhi-headquartered EPC company Globe Civil Projects plans to garner Rs 119 crore through IPO. The IPO price band has been set at Rs 67 to Rs 71.
Industrial gases provider Ellenbarrie Industrial Gases plans to mop up Rs 852.53 crore via the public issue. The IPO price band has been set at Rs 380 to Rs 400.
Electric resistance welded steel pipes and structural tubes maker Sambhv Steel Tubes plans to raise up to Rs 540 crore. However, the biggest public issue of the current year will be from HDB Financial Services with a size of Rs 12,500 crore. The IPO price band has been set at Rs 700 to Rs 740. This remains the most anticipated issue among the pack.
The SME segment will also see top action with 7 IPOs opening for subscription. Reports indicate that Tata Capital is closing in on a blockbuster Rs 17,200 crore IPO, after receiving regulatory clearance for its confidential draft prospectus. Expect some shift in fund flows from both retail investors and institutions from secondary market to IPO segment. The fresh wave of equity supply via initial public offerings (IPOs) can be a key risk to Indian stock market.
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FUTURES & OPTIONS / SECTOR WATCH
With the broader indices Nifty and Bank Nifty locked in a tight range, derivative segment witnessed mild bouts of alternate buying and selling in stock futures. Despite ongoing tensions between Iran and Israel, indices ended the week on a positive note. In the options market, prominent Call open interest for Nifty was seen at the 25,500 and 25,300 strike, while the notable Put open interest was at the 25,000 and 24,800 strike. For Bank Nifty, the prominent Call open interest was seen at the 57,000 and 56,500 strikes, whereas notable Put open interest was at the 56,000 strike. Implied volatility (IV) for Nifty's Call options settled at 13.51%, while Put options concluded at 14.06%. The India VIX, a key market volatility indicator, closed the week at 14.26%. The Put-Call Ratio Open Interest (PCR OI) for the week was 1.06. Nifty is currently trading near its resistance level of 25,200. A breakout above this level could lead to a further move towards 25,500. On the downside, immediate support is placed at the psychological level of 25,000, followed by strong support at 24,800. As long as Nifty holds above 24,800, the market can be considered a buy-on-dips. Watch out for breakout attempts near resistance and potential reversal signs around the key levels. As always, manage risk with discipline and stay anchored to price confirmation. Stocks looking good are Ashok Leyland, BEL, Bharti Airtel, Indus Towers, Trent, Kaynes and Wipro. Stocks looking weak are ATGL, Bluestar, RVNL, Shree Cements, Tata Chemicals, Unominda and Voltas.
(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)

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