The global financial markets witnessed a wave of turbulence on Monday as the long-standing tensions between Iran and Israel escalated, sending shockwaves through investor sentiment. In response to the heightened conflict, both the BSE Sensex and Nifty 50 took a notable downturn, reflecting the apprehensions of market participants.
At the opening bell, the 30-share Sensex plunged by 930 points to 73,315.16, marking a significant decline of 1.25% from the previous close. Similarly, the Nifty 50 fell sharply by 180.35 points, opening at 22,339.05, down 0.8% compared to the previous session.
The root cause of the market downturn can be attributed to multiple factors. Firstly, concerns over the Iran-Israel conflict, reignited by Iran’s launch of drones and missiles on Israel in retaliation for an earlier Israeli strike, gripped investor sentiment with uncertainty and fear. The specter of a potential escalation in hostilities between the two nations looms large, casting a shadow over global stability.
Moreover, apprehensions regarding the delay in interest rate cuts by the US Federal Reserve further exacerbated market anxieties. Speculation surrounding the Fed’s monetary policy decisions for 2024, coupled with fears of higher-than-expected US inflation, added to the prevailing unease among investors.
Another significant factor contributing to the market downturn is the recent amendment to the India-Mauritius tax treaty. The revised treaty, aimed at curbing tax evasion and avoidance, sparked concerns among investors regarding the potential implications for investments. The lack of clarity surrounding the applicability of benefits under the amended treaty prompted foreign portfolio investors (FPIs) to offload equities worth over Rs 8,027 crore on a net basis, intensifying market jitters.
Despite the initial downturn, both indices witnessed a partial recovery later in the trading session. However, the prevailing uncertainties surrounding geopolitical tensions and economic policies continue to cast a shadow over the market outlook.
According to analysts, the evolving situation in the Middle East remains a key determinant of market dynamics in the coming days. The potential for further escalation in the conflict, coupled with the cautious stance adopted by central banks globally, underscores the need for vigilance among investors.
While the immediate impact of the Iran-Israel conflict on the markets remains uncertain, the resilience of global financial systems will be put to the test in the face of geopolitical uncertainties and economic headwinds. As investors brace themselves for potential volatility, the coming days are likely to be characterized by heightened vigilance and cautious optimism in the face of evolving geopolitical and economic challenges.