Iran-Israel tensions likely to trigger choppy trade on Monday. What should investors do?

Indian stock markets are expected to open gap down on Monday as Israel launched preemptive strikes on Iran on Saturday after the US and the West Asian nation failed to iron out their differences over the nuclear deal.

President Donald Trump called it a "major combat operations in Iran" in a video release on social media after the strikes were launched near the offices of Supreme Leader Ayatollah Ali Khamenei.

The global cues remain negative and are expected to weigh on markets, despite a positive surprise that came its way on Friday in the form of India's Q3 GDP numbers of 7.8%, reflecting broad-based strength in the economy.

Kranthi Bathini, Director-Equity Strategy at WealthMills Securities said finally the inevitable happened after weeks of uncertainty. The Street was anticipating conflict blowing into war sooner or later, he said.

Bathini sees a choppy trade on Monday, expecting sharp cuts that may stay over a near term. The trajectory in crude oil will remain a key trigger for domestic markets and a level around $80 per barrel could be a strong negative, the WealthMills expert said.

His advice to investors is to remain invested and utilise corrections to buy on dips for long term.

Bathini said the world has seen two major conflicts in the past 4-5 years - the Russia-Ukraine war and Israel-Hamas conflict that escalated to Iran as US bombed its nuclear facilities. "The Iranian response will decide the course of the conflict," Bathini said.

Expert Anuj Gupta also expects the markets to open with cuts. He suggests investors to reduce their existing positions and wait for things to unfold before making new positions.

India’s benchmark indices Nifty and the BSE Sensex, ended with deep cuts on Friday amid selling pressure across the board. Auto, financials and FMCG were major laggards while the IT sector saw selective buying action. In a volatile session, the broader Nifty edged lower by 317.90 points, or 1.25%, to close at 25,178.65, while the 30-share Sensex plunged by 961.42 points, or 1.17%, to settle at 81,287.19.

What transpired?

Iran currently has a self-imposed limit on its ballistic missile program, limiting its range to 2,000 kilometers (1,240 miles), The Associated Press reported. That puts all the Middle East and some of eastern Europe within reach. There is no public evidence of Iran seeking to have intercontinental ballistic missiles, though Washington has criticized its space program as potentially allowing it to one day, the report said.

Iran has maintained that it no longer enriches uranium, but it has blocked international inspectors from visiting the sites the United States bombed during the 12-day war in June.

AP report said it analysed satellite photos that showed new activity at two of those sites, suggesting Iran is trying to assess and potentially recover material there.

Ahead of the strikes, Trump built up the largest U.S. military presence in the Middle East in decades. The arrival of the aircraft carrier USS Abraham Lincoln and three guided-missile destroyers at the end of January bolstered the number of warships in the region.

Blasts in northern Israel and sirens in Jordan

Explosions rocked northern Israel on Saturday as the country worked to intercept incoming Iranian missiles after launching a nationwide attack with the U.S. on Iran. The blasts echoed just after the Israeli military said it would be using its air defense systems to bring down the Iranian fire.

There was no immediate word on any damage or casualties from the ongoing attack.

Meanwhile, Israel said its air defenses will activate and nationwide warning was issued.

Global cues

Global cues remain largely negative. Frontline indices on Wall Street ended with cuts on Friday. The Dow Jones slumped over 521.28 points or 1% to end the day's at 48,977.90. The Nasdaq Composite tanked 210 points or 1% to settle at 22,668.20. Meanwhile, the S&P 500 Index also ended in the red though, the fall was less severe at 0.43%.

The European markets also displayed a somber mood with key indices like Spain's IBEX 35 and French CAC 40 falling up to 0.73%. Germany's Dax ended flat while the Stoxx 600 and the UK's FTSE 100 index gained 0.6% and 0.1%.

Tech view

Bajaj Broking said the volatility is likely to remain elevated amid uncertain global cues. "On the higher side Friday’s breakdown area of 25,400 - 24,500 is likely to act as immediate resistance. Bias remains down. A follow-through weakness below last week low (25,141) will open further downside towards 25,000-24,800 levels in the coming weeks being confluence of 52 weeks EMA and key retracement," the brokerage said.

Decoding the chart, Dr. Ravi Singh, Chief Research Officer from Master Capital Services said index has breached its critical 25,300 support and the 200-day EMA, signaling a bearish shift in short-term momentum. For the coming week, the 25,000 psychological mark stands as the make-or-break level and a breakdown here could drag prices toward the 24,800 area. On the upside, 25,350 and 25,600 now act as stiff hurdles, Singh said.

"Strategy remains sell on rises until the index decisively reclaims 25,600. Expect continued volatility as the market searches for a stable bottom," the analyst said.

Also Read: Iran-Israel conflict: Expect a gap-up opening in gold and silver. Here's how to trade bullion on Monday

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)