Nifty May Face Short-Term Pressure Amid Escalating US-Iran Tensions, Potential Recovery in Sight Within 1-2 Weeks

Market Report: US-Iran Conflict Could Trigger Temporary Correction in Indian Equities

Key Findings:

• Analysts at Emkay Global Financial expect a sharp but temporary correction in Indian equities due to renewed military action between the United States and Iran.
• The benchmark Nifty is likely to come under pressure in the coming week, with a potential correction triggered by hostilities between the US and Iran.

Market Impact:

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• A sustained war between the US and Iran poses significant macro risks for India, including disruptions to oil supplies and global supply chains.
• Brent crude prices are expected to spike to $90-100/bbl, with severe dislocation of oil supplies and global supply chains in the short term.
• Higher crude prices will hurt macro-financial stability by putting pressure on the currency, current account deficit, and domestic inflation.

Domestic Implications:

• A spike in crude prices will lead to a 0.5% CAD/GDP spike, with potential cuts in excise duties and a fiscal hit of Rs 150 bnpa.
• Corporate margins are expected to take a hit as the tightness spills over to petchems and commodities.
• Petrol/diesel prices may spike by Rs 0.52/Rs 0.55 per liter for every USD1/bbl increase in crude prices.

Global Risk-Off:

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• The conflict could trigger a global risk-off, with India bearing the brunt due to its vulnerability to energy imports and expensive valuations.
• Aggressive, short-term FPI selling and a renewed run on the rupee are expected, with remittances potentially affected if the conflict broadens.

Sectors to Watch:

• Upstream energy, metals, IT sector, pharma, and private banks are likely to remain relatively unscathed in this scenario, with some benefits offset by windfall taxes and currency depreciation.