How the Israel-Hamas conflict has given investors a chance to buy large-cap stocks

 How the Israel-Hamas conflict has given investors a chance to buy large-cap stocks

Israel-Hamas crisis: When the Israel-Hamas conflict erupted on October 7th, Saturday, a knee-jerk response was anticipated on Monday's opening; nevertheless, both the international and Indian markets only saw a little change. The Indian market did, however, bounce back from the slow start to the week, topping the previous Friday's closing level on October 6th with a positive trajectory. The rising consensus that the conflict is well managed and unlikely to go beyond local borders is to blame for this comeback.

The Israeli military's inherent strength and the widespread international backing kept tight control of the situation. During this time, bond yields moderated globally as the Indian market rose in anticipation of a positive start to the Q2 profits. By the end of the first week of the battle, however, the publication of higher-than-expected US inflation figures and the ensuing rise in Treasury rates had somewhat negated the good news. However, the market was shifted to the weekend since it was thought to be secure.

impact on the world market

The start of the second week, however, proved difficult as the complexity of the battle and ground operations became more apparent and the first Q2 results, notably in the IT and financial industries, were muted. Market selling was fueled by the growing Middle East danger (hospital bombing concern). Geopolitical tensions that persisted had a negative impact on market mood and caused a general decrease. Oil prices increased; the UK Brent price reached 93 dollars on Friday night, up from 83.47 dollars at the close on October 6. This was a significant development for major petroleum importers like India.

Similar to this, US bond rates were gently raised before to the US Fed chair's address on Thursday. And after the speech, when it was suggested that a rate rise would be possible in the future based on economic data and to lower the amount of liquidity in the financial market to support high interest rates in the economy, it stayed the same. These values, which ended the week at 4.95%, were similar to those seen before to the global financial crisis of 2008.

It is important to note that the bond yield is anticipated to peak in the ensuing quarters. The US CPI monthly sits at 3.7% in September 2023, down 400bps from 7.7% in October 2022 as a result of a substantial decline in inflation. By controlling banking liquidity, central banks from across the world are presently coordinating attempts to slow the economy and boost interest rates. As a result, in the short to medium term, the high bond rates may continue to be higher than the long-term trend.

The Middle East conflict is now expected to be a short-term blip because to the long-standing contrasts in power between the two sides, which make war unsustainable over the long run. To the detriment of commodity prices and regional geopolitical risk, Israel's plan to conduct a protracted military incursion into Gaza and destroy Hamas infrastructure will win out.

Conclusion

In spite of probable volatility, there is a rising trend of bargain hunting in expectation of the festival-driven demand in India and the optimistic Q2 results, leaving aside the anticipated short- and medium-term effects of conflict on the stock market. Bottom-up approach purchasing has been seen and is anticipated to continue once the earnings season gets underway. Net selling by FIIs was 27,220 crore from September to October 18th, while net purchasing by DIIs was 33,428 crore, comfortably covering the difference. And as of now, the Nifty100 index has increased by 13% in FY24, below the 20 to 25% expected profits growth for big capitalization businesses. The chance would be to buy big caps, which are expected to do the best during the next medium-term.