Volatility likely to persist amid escalating geopolitical uncertainty

Weakglobal cues and continued foreign institutional outflows, fears of AI impact on IT services companies and rising geopolitical tensions involving Iran dampened investor sentiment during the week ended.

The Sensex was down 961.42 points or 1.17 per cent at 81,287.19, and the Nifty was down 317.90 points or 1.25 per cent at 25,178.65. In the broader market, the Nifty Midcap and Smallcap indices were also down 1% each. FIIs turned net buyers in February, picking up Indian equities worth Rs 22,615 crore during the month. Friday’s sharp sell-off has cast doubt on the sustainability of that trend reversal.

With the Iran-Israel conflict escalating over the weekend, risk appetite could take a back seat, prompting foreign investors to adopt a wait-and-watch approach before committing fresh flows to emerging markets. Some fund managers see a deeper impact of war on India, accelerating the foreign capital outflow because of its reliance on imported crude oil. Higher crude oil prices could widen the current account deficit, stoking domestic inflation, pressure the rupee. We have a brand-new GDP series with base year 2022-23, with many more up-to-date data sources and better methods of computing the real from nominal data.

The revision tell three uncomfortable truths: the economy is smaller than we thought, investment is weaker, and the sectoral map looks quite different. Nominal GDP for FY26 is now estimated at Rs 345 lakh crore while it was Rs 357 lakh crore as per the first advance estimate in January.

Gross fixed capital formation is now pegged at 32 per cent of GDP, well below the 33.8 per cent of GDP estimated under the old series.

Manufacturing’s share of GVA at constant prices for FY26 is pegged at 16.2 per cent while it was 17.1 per cent under the old series. Clearly, there is a problem with manufacturing’s share — It’s not just faulty measurement.

The share of agriculture and allied activities, on the other hand, is now higher, at 17.7 per cent of GVA, compared to 13.8 per cent in the old series. Ultimately, the revision is not just a statistical exercise — It is a more honest map of where India stands. That should make for better policy.

US-Israel attack on Iran is a “known unknown” — an event that had been discussed and anticipated for weeks, and therefore already priced in by markets. The uncertainty of whether the strike would happen at all was arguably more damaging to market sentiment than the event itself. Now that the event has materialized, markets can at least begin processing what comes next with greater clarity.

While a knee-jerk reaction is likely, it would be shallow and short-lived. The broader market has already absorbed a significant correction over the past 18 to 24 months, leaving most of the bad news already factored in. The message across the board: do not panic, do not liquidate, and do not mistake a sentiment-driven dip for a fundamental deterioration.

Investment Musings: Most investors seem to think of diversification as defense. Suddenly, it’s playing offense. While the Nifty and the Sensex have wrenched up and down but gone pretty much nowhere this year. Somebody once said that if you’re comfortable with everything you own, you’re not diversified. View diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. Make sure you are exposed to it. Maybe big Indian growth stocks will reassert their dominance again before long. No one can ever say for certain when a market trend has shifted. Don’t want all your eggs in one basket, because you never know when other baskets will do better. You don’t diversify because you want to be owning the stock that is doing well at any given time. You diversify because you want to reduce risk. Buffett even said diversification is “protection against ignorance” for the inexperienced investor.

Follow market trends and history. Don’t speculate that this particular time will be any different. For example, a major key to investing in a specific stock is its performance over five years.

FUTURES & OPTIONS / SECTOR WATCH

Settlement week witnessed derivative markets trading under sustained pressure through the week and closing on a distinctly negative note. After attempting a modest recovery early on, the Nifty faced persistent selling at higher levels and drifted lower as the week progressed.

IT stocks stayed under pressure due to concerns that AI may affect the future earnings of IT companies. Investors have been betting for years that artificial intelligence would change everything. They got some proof of it this month—and then they started selling. The market showed sector-wise movement. On the weekly charts, Pharma, Healthcare and Metal stocks performed well while Realty, IT, and Chemical stocks saw selling pressure.

In the options segment, the significant Call open interest for Nifty was observed at the 25,500 and 25,400 strikes level whereas notable Put open interest was concentrated at the 25,000 strike. For Bank Nifty, significant Call open interest was seen at the 61,000 strike with substantial Put open interest at the 60,000 strike. Implied volatility (IV) for Nifty’s call options settled at 11.16% while put options concluded at 12.74%. The India VIX, a key indicator of market volatility concluded the week at 13.06%. The Put-Call Ratio Open Interest (PCR OI) stood at 1.30 for the week.

Nifty has closed below its long-term average, the 200-day Exponential Moving Average (200 EMA), on the daily chart. If the index continues to trade below this level further downside movement may be seen in the coming sessions. Both Nifty and Bank Nifty have also closed below their key rollover levels of 25,600 and 61,200 respectively which indicates weakness and continued pressure in the market.

Immediate resistance levels are seen at 25,350 and 25,550. Key supports are placed at 25,050 and 24,700. With Tuesday, March 03, being a trading holiday on account of Holi, the truncated week may begin on a cautious note amid prevailing softness. Traders are advised to remain cautious and trade with strict risk management.

Stocks looking good are Glenmark, GMR Airports, Laurus Labs, PG Electroplast, Solar Inds, NTPC and OIL. Stocks looking weak are DLF, HAL, Mannapuram, Muthoot Finance, SBI Cards and UPL.

(The author is a senior maket analyst and former vice-chairman, Andhra Pradesh State Planning Board)