Iran-Israel war: How did it affect the stock market? - Updates for this week

It's been long since I wrote an article. I apologize the readers for not providing updates for these days. Here on let us start. This week we could see almost a 4% downward correction in Indian indices. Not only India, but also also the global indices like Nasadaq have corrected. However Nasadaq made a mild recovery in the recent trading session. But we cannot expect that to sustain and it can fall. But in this article let us explore about the Indian markets and various factors led to the correction. 

What happened this week?

This week, the FIIs sold a huge portion of their holdings. The data suggests that, this month [October] , FIIs have sold Rs. 30,700 crores [approximately] securities. In usual trend [found this year], the DIIs would absorb the complete selling pressure from FIIs. This was possible because the DIIs in our country [India] are in cash surplus. I read in some article that DIIs together holds approximately Rs. 1.8 lac crores. So whenever the market moves up FIIs would offload the shares and DIIs would buy, and the DIIs would absorb their selling. These FIIs are finding other countries to park their funds. 

But this time we saw that DIIs have paused a bit. However they are purchasing slowly. As per NSE data, DIIs have net bought Rs. 8,905.08 crores worth shares in the market. 

Reasons behind the correction:

There can be various reasons for FIIs to sell

Firstly, due to the war the exports in our country has been highly affected. So this has led to correction in the so called 'dollar companies' or exporting companies. This was the main reason for correction in IT majors like TCS and Infosys. 

Secondly, we could witness a correction in FMCG companies like HUL, ITC, Dabur. The main reason for this correction was the sales report update from Dabur. It indicates that their sales for q2 2024-25 was not good. This made the investors to expect that even other FMCG companies will also be facing the same issue. I guess that, this could be because of the heavy rains that has caused damage to the crops in some parts of the country. The other reason for this correction is due to war for the reason said above [exporting companies]. Also, there is an expectation that Israel might attack the petroleum lines in Iran. If it happens, it will increase the fuel cost in all the countries which import from them, due to the sudden shortage of fuel ⛽️. This could impact the prices of agri produce like rice, vegetables, etc., as they are being transported through fuel operated vehicles. If the prices of these necessary goods rise, then they may negatively impact these FMCG companies as people [mainly in rural region] have only limited money to spend on other items. 

The increase in crude price was the reason for correction in paint and tyre companies. The crude price is expected to rise further. 

Finally other main correction was witnessed with gold financiers. This was due to the instructions from the RBI. We saw a correction in companies like Manappuram, and Muthoot Finance. But it can become alright in long term. 

Other sectors like automotive companies were all facing correction because of the same war reasons.

Impact due to Bank of Japan [BOJ]:-

In between, we saw another correction which was before the war correction. It was the announcement from BOJ that, there won't be any interest rate hike as of now. But they may rise interest when the economy moves in the track which they expect. 

This possibly may happen only in December according to experts. 

So, this resulted in a rally in Japanese stock market and a correction in other global stock markets. 

What to do now?

 Usually during such uncertain times, investors feel gold as a good option for hedging. By seeing the markets one thing which I strongly believe is, gold has the possibility to rise even further. The two main reasons are the war as I said and the other one is the rate cuts which is expected to happen once again this year end. But I request the readers to decide whether to buy or not, I'm just saying I like to invest in gold during uncertain periods. As soon as the war was announced, the VIX has surged. This shows the increase in level of uncertainty. 

During times like this investors should pull back their money from momentum stocks and purchase fundamentally strong stocks at a lower price. But the 'good stock' should be analyzed and found. We could even expect an overall 10% correction in Nifty. This provides a good buying opportunity for investors. 

Conclusion:

In my view, the Nifty was at an overbought region and it was looking for a right time to correct. Now the war was just a reason for the markets to correct. Even our markets would come back to the bull run only when it is confirmed that both will not attack each other anymore. Until then we could expect the markets to move side ways.

Investors are now eyeing on finance sector companies, probably it must be due to their valuations. But in this correction I expect many good companies to be available at a cheaper valuation. We could see even the gold financing companies also corrected. They all provide us an opportunity to accumulate one or two shares at a time as and when the market falls. But it is very risky to buy shares in a huge quantity. This is because of the uncertainty in the market I'm cautioning about the risks too. But I request readers to do their own research before investing in such shares. 

It is sad 😔 to look at people dying and others loosing their homes. As of now, the picture looks like the war may get prolonged. 

Let us pray for the peace and well-being of the people in those countries. 

Disclaimer:

All the investment options discussed above are just for informational purposes only. I am not recommending anything to buy. I request readers to take buy or sell decision based on the advise of a SEBI registered advisor only. I request readers to make their own research before buying or selling any investment options.