Nifty 50, Sensex log worst week in two years over Israel-Iran war: What should be your trading strategy amid volatility?

Stock Market Crash: Domestic equity benchmarks Sensex and Nifty 50 last extended losses for the fifth straight session in exceptionally volatile trade and logged their worst week in over two years amid weak geopolitical tensions and foreign outflows. The market crash came after a two per cent decline during Thursday's session.

The frontline indices lost about 4.5 per cent each for the week, their worst since June 2022. Overall, the indices ended the truncated September 30-October 4 week after three straight weeks of positive returns. From their record highs scaled on September 27, the benchmarks have dropped over five per cent.

Also Read: Nifty 50 slides 4.4% this week, posts largest weekly drop since June 2022 on growing Iran-Israel war fears, FII outflows

Falling for the fifth day running on Friday, the 30-share BSE Sensex tumbled 808.65 points or 0.98 per cent to settle at 81,688.45. The domestic benchmark hit an intraday low of 81,532.68 and a high of 83,368.32 during the day, reflecting a wild swing of 1,835.64 points during the session.

The NSE Nifty 50 slumped 235.50 points or 0.93 per cent to settle at 25,014.60. Intra-day, it hit a high of 25,485.05. During the last leg of the trade, the benchmarks again slipped into the red. Sensex shed 1,835.64 points from the day's high of 81,532.68, while the Nifty tanked 518.25 points to its day's low of 24,966.8.

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“There was carnage on Dalal Street as markets plunged on across-the-board selling pressure on twin concerns of foreign funds pulling out funds from emerging markets, including India, and steadily increasing exposure to Chinese markets after the recent stimulus measures,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd

“At the same time, the escalating tensions in West Asia have set alarm bells amongst investors. Indian markets had witnessed a stupendous rally over the past month, and the correction had been waiting for some time,” added Tapse.

Over the past five trading sessions, Indian stock markets have experienced a substantial decline in investor wealth, with approximately ₹13 lakh crore being wiped out. This week, the total market capitalization of Indian stocks has dropped to ₹466 lakh crore, marking a steep loss of ₹13 lakh crore in just five sessions.

Also Read: Stock Market Crash: Israel-Iran war to FII outflows—5 reasons why Sensex, Nifty plunged today amid volatility

Escalating geopolitical tensions in the Middle East due to the Israel-Iran war have triggered a sell-off in emerging markets such as India. The spike in oil prices due to geopolitical tensions has dented market sentiments. Moreover, the market regulator's new equity derivative trading rules and foreign fund outflows from Indian equities have been directed as inflows into China after its recent stimulus measures are also among the key triggers of the market crash.
 

D-Street experts on stock market's performance:

D-Street experts said that the above-mentioned factors, accompanied by a rise in safe-haven assets like the US Treasury yields and the US dollar index, have pressured risky assets such as emerging market stocks, including India.

Narinder Wadhwa, Managing Director, at SKI Capital Services Ltd: "In addition to geopolitical tensions, Indian markets are grappling with stretched valuations. After a prolonged bull run, certain sectors appear overvalued, heightening the risk of corrections, especially if global factors worsen or domestic growth slows. This makes the market more susceptible to fluctuations, with high volatility likely becoming the norm soon."

Also Read: China’s weight in MSCI’s EM index soars to highest level since November amid sharp rally in stocks

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services: "FIIs are moving money from expensive India to cheap Hong Kong on the expectation that the monetary and fiscal stimulus being implemented by the Chinese authorities will stimulate the Chinese economy and improve the earnings of Chinese companies. 

It remains to be seen how these Chinese recovery hopes play out. The market direction in the near term will be influenced by the tug-of-war between FIIs and DIIs. DIIs have deeper pockets than FIIs and are more convinced to buy the India Growth Story."

Lt. Col. (Retd.) Rochak Bakshi, Founder and CEO of True North Financial Services: "If Iran attempts to block the Strait of Hormuz, it could lead to a crude oil price shock, with Brent breaching the $95/barrel mark. This can have a severe impact on the already struggling global economy, especially on India.

Also Read: FPIs take U-turn in October, offload ₹27,142 crore in Indian equities: Here’s what triggered the sell-off

However, the Indian economy is well-placed to tackle this crisis. Our foreign exchange reserves stand at $692 billion. The current account deficit is comfortable at 1.1 per cent, and external debt is at 18.7 per cent of GDP in FY 2024."

Nifty 50, Sensex in correction: What should be your trading strategy?

Market analysts say investors and retail traders should monitor the emerging situation closely and stay updated on global events. They advise that participants take a measured risk approach, as the ongoing volatility may negatively impact the markets and still provide an opportunity to trade short-term volatility trends.

Rupak De, Senior Technical Analyst at LKP Securities: "The Nifty witnessed a bear attack for the second consecutive day. Sustained trades below key levels triggered a correction towards 25,000. The sentiment has become extremely weak, with higher levels used as selling zones. On the lower end, the next support is 24,750; on the higher end, resistance is visible at 25,300."

Also Read: Oil soars 10% in five days, logs biggest weekly gain in one year over Israel-Iran war; Brent sits at $78/bbl

In the aftermath of a market correction, mutual fund investors often face a critical decision, such as stopping their SIPs (Systematic Investment Plans) or viewing the downturn as a valuable opportunity. Historically, market correction tend to be short-lived, frequently providing a chance to buy mutual fund units at lower prices. In such a case, what should mutual fund investors do? Should they stop SIP or use crash as an opportunity?

Analysts say by continuing SIPs during such downturns, investors can take advantage of 'rupee-cost averaging,' accumulating more units when prices are reduced. This approach not only lowers the average cost per unit but also positions the portfolio for greater returns when the market eventually recovers, softening the impact of short-term volatility.

Swapnil Aggarwal, Director, VSRK Capital: "Alongside maintaining regular investments, revisiting asset allocation becomes essential in turbulent times. A well-diversified portfolio that balances equities with safer assets like bonds can withstand market fluctuations more effectively. This may involve shifting some investments into bond funds or other stable instruments, which can provide a cushion against further declines.

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While the immediate impact of a market correction may lead to declines in the NAV (Net Asset Value) of mutual funds, disciplined investors can view this as a moment to reassess their strategies. Focusing on long-term financial goals while adopting a proactive approach allows investors to turn market volatility into opportunity, paving the way for future growth and resilience."
 

Justin Khoo, Senior Market Analyst APAC, VT Markets: "The Israel-Iran war could lead to a potential shift of capital into safe-haven assets like gold. Before considering trading gold, two key factors must be monitored: strong labor data on Friday and a decisive gold close above 2685.49. Only if these conditions are met should we proceed to identify suitable buy areas.

Outside of geopolitical concerns, money managers are reducing long positions across Asia to fund investments in China following the announcement of numerous measures by Chinese authorities to stimulate growth. Although this shift is in its early stages, there has not yet been a significant withdrawal of foreign capital from India. However, the current momentum suggests there may be an argument for a potential rotation from India to China."

Also Read: SEBI new F&O trading norms: Zerodha to review pricing after November 20, says CEO Nithin Kamath

Lt. Col. (Retd.) Rochak Bakshi, Founder and CEO of True North Financial Services: This can be categorized as technical corrections, as the Indian growth story remains intact. Such corrections should be expected, especially when markets are at an all-time high. Historically, these technical corrections have been brought into play, particularly with the high cash levels available to domestic institutional investors. 

One should use this opportunity to nibble into quality stocks and deploy incremental money into their mutual fund portfolios. Though this correction may feel painful, it will look like an opportunity in hindsight, similar to the correction of election results. Retail investors should maintain their asset allocation and rebalance their assets if we witness a meaningful correction of 10 per cent or more during this technical phase.
 

Krishna Appala, Sr. Research Analyst, Capitalmind Research: "Although OPEC+ has reaffirmed plans to increase output in December, concerns remain about potential impacts on Iran’s oil infrastructure. The key lesson here is that while we cannot predict the future, it’s important to have a high-level plan and not react in panic. 

Also Read: India’s forex reserves swell by $12.5 billion to cross $700-billion milestone after seven-week surge

These geopolitical flare-ups tend to occur periodically, and though the situation may seem critical now, such tensions have arisen. Nuclear weapons act as a deterrent, ensuring they are never used, while more powerful arms are developed with the hope of avoiding conflict altogether. In the end, this too shall pass, and staying calm remains the best strategy."
 

Ajit Mishra – SVP, Research, Religare Broking Ltd: “While there may be a pause or slight rebound after the recent slide, the overall bias will remain negative unless Nifty decisively reclaims the 25,600 level. Key sectors such as IT, metal, and pharma show resilience, while others face selling pressure during rallies. Traders should adjust their positions accordingly and consider adopting a hedged approach.”

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.