Markets Prepare for Prolonged Period of Uncertainty

Global Markets Plummet Amid Escalating Middle East Conflict

Market Overview The escalating conflict in the Middle East sent shockwaves through global markets last week, with a sharp 12 percent surge in oil prices on Friday triggering a wave of selling. The conflict's uncertain duration and potential to disrupt energy supplies pushed US Treasury yields higher, adding to market anxiety.

Indian Markets Domestic stocks were heavily impacted, with the Nifty50 falling 728.2 points, a decline of 2.89 percent. Broader market indices, including the Smallcap and Largecap indices, also declined by 3.3 percent and 3 percent, respectively. The Realty and Media sectors were among the hardest hit, with declines of 5 percent and 4.3 percent, respectively.

Sector Performance The PSU Banks sector bore the brunt of the selloff, tumbling 6.5 percent. The Defence index was the only bright spot, gaining nearly 5 percent.

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Foreign Institutional Investors (FIIs) FIIs offloaded equities worth Rs 21,831.19 crore during the week, marking their third consecutive week of net selling. The Indian Rupee hit a fresh record low, losing 77 paise to close at 91.74 against the US dollar on March 6.

Global Markets Every major market closed in the red, and the CBOE Volatility Index jumped 5.74 points to close at 29.49, its highest level since April 2022.

Market Sentiment Rising energy costs have revived fears of a fresh inflationary spiral, with analyst forecasts for oil prices ranging widely from $80 to $150 a barrel. The trajectory of the conflict will largely dictate the direction of markets, with any credible signal of a ceasefire or negotiated settlement providing meaningful relief to investor sentiment.

Technical Analysis The technical picture tells a sobering story, with the RMI momentum indicator languishing below the zero line, a breach of a major support level. Price action is carving out a clear lower-low structure, and the 40-period exponential moving average has been breached. These developments point to a market under sustained pressure, with the path of least resistance remaining to the downside.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

FII Positioning The FII net index futures position indicator has broken through a significant trendline, coinciding with price breaching key support and continuing its descent. The current net index futures position stands at a heavily negative 1,74,291 contracts, sending an unambiguous signal that further downside remains very much on the table.

Market Breadth The 14-day advance-decline ratio has been flashing a warning signal, with the indicator registering lower lows even as prices climbed to higher highs. This bearish divergence has now been confirmed, with both the indicator and price breaking down in tandem. The percentage of Nifty 50 stocks trading above their 100-day simple moving average has suffered a significant support breakdown, reinforcing the deteriorating outlook.