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Geopolitical developments to drive market sentiment!

ICICIdirect Research 13 Jun 2025 DISCLAIMER

Equity benchmark pared early week gains tracking subdued global cues owing to Israel's military strike on Iran. Consequently, Nifty settled at 24650, down 1.5%. Mirroring the benchmark move, Nifty midcap and small cap snapped 4 weeks winning streak, down 1.5%. Sectorally, profit booking was observed in recently rallied rate sensitives like, realty, financials and auto while IT, Pharma regained lost ground 

Commodity update: Brent crude oil jumped 18% during the week ($78) tracking escalated geopolitical tensions in the oil-rich Middle East. The risk-off sentiment fuelled the momentum in safe heaven gold, up 3.5% at $3440

What to expect: Volatility to remain elevated tracking geopolitical worries. Hence, development of geopolitical concern would have bearing on the market which would dictate further course of action wherein strong support is placed at 24500. Meanwhile, last week's high of 25200 would continue to act as immediate hurdle.

Historical Geopolitical Evidences: In the last four decades there have been six major geopolitical escalations. On each occasion it formed major bottom once anxiety around the event settled down. Investing in such panic reactions with long term mind set has been rewarding. In the current scenario, post the kneejerk reaction, we believe market would stabilise. Hence, we advise dips should be capitalised to build quality portfolios from medium to long term perspective   
 
Structure: The elongation of rallies followed by shallow correction is a perfect recipe of bull market. In current scenario, over past 21 sessions index has retraced merely 23.6% of preceding 25 sessions 16% up move. Slower pace of retracement indicating robust price structure that bodes well for next leg of up move

Broder Market: Nifty midcap is undergoing healthy retracement after 28% rally which should be used as buying opportunity based on following observations:

  • Since April low, Midcap index has not corrected >6% while on the weekly chart it has not closed below its previous week’s low. In current scenario, despite ongoing volatility, midcap index has been maintaining the same rhythm.
  • Further, the ratio chart of Nifty 500/Nifty 100 has been inching upward that clearly indicates relative outperformance
  • Improving market breadth as currently 55% of stock are trading above 200 days SMA compared to last month reading of 30%  

Key Monitorable:

  1. Development of geopolitical concern
  2. Brent crude is poised at immediate hurdle of $78. Follow through strength would fuel further volatility in emerging markets
  3. Despite current decline, Index VIX is trading below immediate hurdle of 16
  4. Further weakness in US Dollar index 
  5. Bilateral Trade Agreement between India and US
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