Dear Reader,
Uncertainty got ratcheted up several notches this week, thanks to Israel’s ‘pre-emptive' attack on Iran. It’s early days yet, but oil prices have flared up, gold has strengthened, the USD has firmed and markets have slipped modestly into the red. There is, of course, always the risk of a wider regional conflagration, but there are few signs of that so far. Iran has launched retaliatory action against Israel in what it calls ‘Operation True Promise 3’. If that goes the way of the earlier attacks by Iran on Israel -- Operation True Promise I and II, then there’s little to worry about. But as Shishir Asthana writes, “Unless we see clear signs of de-escalation, which would be reflected in oil prices and market volatility (as measured by the VIX), it may be wise to avoid making investments in an attempt to catch market bottoms.’
The broader context has been cogently explained in Martin Wolf’s column in the Financial Times (free to read for Moneycontrol Pro subscribers) titled ‘An ever riskier world economy’. Another FT story warned about the Kindleberger Trap, which said “that turbulence erupts when a dominant geopolitical power loses the ability or desire to support a reserve currency, without its ascendant rival stepping into the breach”. The USD has been very weak. This story said dollar weakness has been turning all fund managers into currency traders.
Back home, Sanjeev Prasad, Managing Director and co-head, Kotak Institutional Equities, in an interview with Vatsala Kamat, said: ‘Investors are complacent about the future. There are lots of macro and sector-specific risks, which the market seems to be ignoring. Valuations don't seem to suggest that that the market is cognizant of the risks.” And this story said “current market circumstances can bring about a reality check and tone down investor expectations”.
Were the US-China talks in London a hopeful sign? Hardly—all that seems to have happened is talks about talks. We were appropriately sceptical, pointing out that “only a binding agreement would reassure investors in both countries and elsewhere in the world”. The US inflation print for May, on the other hand, was encouraging, as many expected the impact of the tariff hikes to be reflected in the readings. But while inflation may be well-behaved for now, growth is a different story. The World Bank’s Global Economic Prospects forecast global growth to fall from 2.8 percent in 2024 to 2.3 percent in this year. For the US, the forecast is a fall from 2.8 percent to 1.4 percent.
The spillover from that slowdown in global growth is what was cited as the reason for the jumbo rate cut by the RBI’s Monetary Policy Committee. The move was vindicated by the Indian retail inflation print for May, which came in at a lower-than-expected 2.8 percent and we discussed what this means for the RBI and future rate cuts. But even here, if geopolitical risks persist and oil prices rise, that could alter the monetary policy trajectory.
The rise in uncertainty, however, doesn’t seem to have bothered the markets. As we pointed out, “nobody would suspect all this storm and stress by looking at some of the global equity indices”. Neither the CBOE Vix or the Nifty Vix is particularly elevated. One explanation is that the market believes firmly in TACO (Trump Always Chickens Out). Indeed, the Chicago Adjusted National Financial Conditions Index shows that conditions are now looser than in early February 2022, before the Ukraine war started and before the Fed started to hike rates.
What to make of all these contradictory messages? Fear not, our Moneycontrol Pro Research Team is at hand to guide you on how to navigate choppy markets in the face of escalating Middle-East tensions.
This week has been a stark reminder of how quickly our world can shift from relative calm to heightened uncertainty. From escalating Middle-East tensions and their ripple effects on global markets, to slowing growth forecasts and the puzzling disconnect between rising risks and seemingly complacent investors, we're navigating through a complex web of geopolitical and economic challenges. The modest market reactions despite these mounting pressures suggest either remarkable resilience or perhaps a dangerous level of complacency that could be tested in the weeks ahead.
Yet amid all these macro concerns and market movements, it's the tragedy of Air India Flight 171 that puts everything into perspective—reminding us that behind every headline and statistic are real human stories. While we analyse the technical and systemic questions this crash raises, our thoughts remain with the families who lost their loved ones, for whom no amount of investigation or explanation can fill the void left behind.
Regards,
Manas Chakravarty
In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:
Stocks Weekly Tactical Pick: Can this consumption play take advantage of tailwinds? Defence stocks, This hospital chain is aiming for high growth, but is it already priced in? Apollo Hospitals, PowerGrid, Oswal Pumps, Page Industries, SRF, Syrma SGS, Shally Engineering, Cyient, GRSE, Royal Orchid Hotels, CDSL
Markets
Israel-Iran Conflict: Geopolitical risk biggest concern for Indian equities, finds Moneycontrol Market Poll
A Wake-up Call for Crypto Policy, MC Market Poll: 62% prefer large-caps over mid/small-caps, How to trade in a rate cut scenario
Financial Times Bitcoin-buying companies Blackrock and alternative investments Can Japan hold on to its ‘indispensable’ companies?
Companies and sectors Amid stuttering sales, PV makers brace for more challenges, NTPC, Microfinance, Who leads, who lags, in the consumer sector? Why are real estate companies making a beeline for the primary market? Alcohol companies, Why India’s life insurers must be ready for a soft growth patch in FY26, NHAI’s funding dilemma, Price hikes remain key driver of Indian pharma market
Economy & Policy
The yawning gap between GDP data and consumer sentiment
The gap between budgetary promises and cold cash
Urban FMCG slowdown
Credit growth falling, can Malhotra’s growth pill do the trick?
Pro Economic Tracker
Tech & Startups Startup Street | The persisting appeal of ‘bad boy’ entrepreneurs Can Apple catch up in the AI race? WWDC 2025 leaves questions looming
Others This mistake of indulgence could leave you old and broke, A B-school programme in temple management is finally here
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