Stocks to Watch, Market Risks Amid Falling PMI and Middle East Tensions
India’s markets are navigating a precarious period, driven by two significant challenges: declining PMI data and escalating geopolitical tensions in the Middle East. The Manufacturing PMI fell to 56.7 in September 2024 from 57.5 in August, signaling a slowdown in manufacturing growth. Despite government efforts to bolster production through Production Linked Incentive (PLI) schemes, core sector momentum is weakening. The Composite PMI, which measures overall private sector activity, has also recorded its slowest growth since December 2023, indicating a broad-based deceleration.
#### Impact of Middle East Tensions
Amid this economic softening, geopolitical tensions have intensified due to the Israel-Iran conflict. The turmoil threatens the Strait of Hormuz, a critical chokepoint for global oil supplies, raising concerns about disruptions. As the third-largest oil consumer, India depends on stable energy flows, and any disruption could significantly raise crude oil prices.
The CRUDEOIL OCT FUT surged by 13% within a week due to these risks, pushing oil prices higher and directly impacting India’s fiscal deficit. Higher oil prices not only elevate the cost of imports but also strain government finances, widening the fiscal deficit. Additionally, the price increase is fueling inflationary pressures, complicating the country’s broader economic outlook.
#### Currency Pressures and Market Response
The situation is further aggravated by the weak Indian Rupee (INR), which has been trading at low levels. A depreciating rupee diminishes purchasing power, making imported goods, especially oil, more expensive, thereby exacerbating inflation risks. The rising costs and weakening rupee combine to create a challenging environment for both consumers and businesses.
From a market technical perspective, the RSI for broader indices like Nifty is signaling an overbought condition, hovering above 83. This suggests that markets are showing signs of fatigue after prolonged upward momentum. The Nifty index, which has already declined by 4.5% over the last 4 trading sessions, may face further corrections as investors engage in profit-booking amid growing uncertainty.
Here, I am assessing the potential impact of geopolitical tensions in the Middle East, particularly the Israel-Iran conflict, on energy prices and stock market movements. The rising crude oil prices due to fears over the Strait of Hormuz and their impact on India’s fiscal deficit are especially concerning. As you noted, with the Indian Rupee weakening and oil prices increasing, inflationary pressures could mount, potentially straining both government finances and consumer purchasing power.
Key Stock Observations Based on Your Analysis:
1. Gandhar
– Current CMP: ₹216
– PE Ratio: 16.04 (Sector PE: 18.32)
– RSI: 53, suggesting a balanced momentum.
– Buy Range: ₹210-215
– Target: ₹228/₹235/₹250
– Holding: 1-8 weeks
– Stop Loss: ₹200
– Outlook: Breakout possible, indicating a good opportunity for entry around the support levels.
2. OIL
– Current CMP: ₹566
– Buy: Only after breakout above ₹580
– Target: ₹610/₹650/₹700/₹730
– Holding: 1-7 weeks (after trigger)
– Stop Loss: ₹530
– Outlook: Momentum in crude oil prices could support the stock post-breakout, but caution is necessary.
3. Petronet
– Current CMP: ₹357
– Stock PE: 13.11 (Sector PE: 12.38)
– ROE: 20.98%
– Buy Range: ₹340-350
– Target: ₹370-₹430
– Holding: 1-10 weeks
– Stop Loss: ₹310
– Outlook: Valuation and ROE suggest strength, with a favorable risk-reward ratio in the current scenario.
4. BPCL
– Current CMP: ₹340
– Stock PE: 8.38 (Sector PE: 8.94)
– ROE: 35.51%
– Buy Range: ₹310-290
– Target: ₹365-₹450
– Holding: 2-8 months
– Stop Loss: ₹265
– Outlook: While a correction is expected, the stock has potential for medium-term gains after the price stabilizes.
5. ONGC
– Current CMP: ₹295
– Stock PE: 8.33 (Sector PE: 17.11)
– ROE: 14.6%
– Buy Range: ₹276-255
– Target: ₹310-₹370
– Holding: 1-6 months
– Stop Loss: ₹240
– Outlook: Expected to correct further, but mid-term prospects are positive after a 10-15% decline, making it an attractive entry point.
Broader Market Impact:
– Crude Oil Prices: The 13% rise in crude oil futures amid the ongoing war will likely drive further energy sector corrections, yet it opens opportunities for strategic entry points in select stocks.
– Fiscal Impact on India: Rising crude prices will burden India’s fiscal deficit, given its heavy oil import dependency. This could lead to inflationary pressure and, in turn, affect broader market sentiment.
– INR Depreciation: The rupee’s weakening exacerbates the inflation risk as India imports oil, diminishing purchasing power.
Investor Takeaway:
While the energy sector may look weak due to recent corrections, there are clear investment opportunities in stocks like Gandhar, Petronet, and BPCL at appropriate levels. Monitoring breakouts and RSI levels will be key to timing entry into these stocks. Oil price volatility remains a significant driver, so caution and short-term adjustments to portfolio strategies are advisable.
This a review based on overall price action, Market Conditions and available inflation on Public palatiform said VLA Ambala SEBI regd. RA
Disclaimer: V.L.A. Ambala emphasizes that these recommendations are based on price movement, past behavior, and technical analysis. Stay cautious and keep an eye on key levels and upcoming budget announcements to adjust your strategies accordingly
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This analysis and recommendations are provided by SEBI registered research analyst VLA Ambala.