Nifty may recover as IDF may end Gaza surgical operation soon

Summary

Israel may go for a ceasefire for a hostage-free deal with Hamas after securing Al-Quds Hospital and the suspected Hamas HQ tunnels

India’s benchmark stock index Nifty closed around 19047.25 Friday, surging +1.01% on easing of Israel-Hamas/Gaza war tensions (after 6-days losing streaks) coupled with upbeat/mixed report card from Wall Street techs majors; Amazon, Intel, Microsoft, and IBM reported above expected report card, boosting Wall Street, while Alphabet and Meta dragged the same after reporting subdued report card. Also, Japan’s and China’s tax cut stimulus boosted global/Wall/Dalal Street index futures. But higher USD/US bond yields also dampened the risk sentiment both globally and domestically.

Risk trade sentiment was also boosted by hopes of a Gaza ceasefire, at least on humanitarian grounds as EU leaders called for ‘humanitarian corridors and pauses, to get aid into Gaza. Japan also called on Israel to temporarily suspend fighting to allow humanitarian assistance to Gaza. Also, BBC said Hamas is considering leaving Gaza for Lebanon, Turkey, or elsewhere. And Russia assured (when asked about US strikes in Syria): “There is no danger of Russia being dragged in”. US military has carried out strikes on Iran-backed targets in Syria as retaliation for attacks on US forces in recent days. Pentagon said President Biden ordered strikes against two facilities in Syria used by Iran’s IRGC and Iran-backed groups.

On Friday's U.S. session, Wall Street Futures got some further boost briefly on hopes of an imminent Gaza Ceasefire after a report that back door negotiations are progressing rapidly to achieve a ceasefire agreement and an exchange deal (hostages-prisoners) between Hamas and Israel, mediated by Qatar. But soon Wall Street Futures slipped as there was another report that Israel refused to respond to a long truce requested by Hamas. Dow Futures soon stumbled almost -500 points, while Gold soared $30 from around 1980 to 2010 on the concern of escalating Middle East geopolitical tensions after a report that Israel launched a ground incursion in Gaza, while the US urged restraint.

Equities tumbled, while Gold and oil surged after Israel expanded its Gaza ground surgical operation to eliminate/flush out Hamas terrorists and rescue any hostages still alive; but Israel is avoiding an all-out Gaza land military operation for various reasons.

Overall, Israel could still delay/postpone/cancel an all-out ground military invasion in Gaza and continue with the present strategy of intensified targeted surgical strike/operation involving aircraft/aerial bombing designed to destroy the underground network of numerous Hamas tunnels and special forces on the ground to eliminate targeted Hamas leaderships/mercenaries and rescue as many alive hostages as possible. The U.S./NATO is also providing direct/indirect ground support in finding underground tunnels and any possible hostages there with laser-guided technology and possibly by providing private mercenaries (contractors/freelancers) or even official U.S. marines.

This strategy will avoid a wider regional conflict and also limit the Israel Military’s casualties and help the general global support for Israel’s right to self-defense and eliminate Hamas. But Israel needs to finish the present ‘expanded’ ground military operation and restore mobile/internet in the Gaza strip ASAP to limit civilian and diplomatic damage. On average records show a 10-30-day duration of the Israel-Hamas war before arriving at any ceasefire. The recent war is now approaching almost 25 days by the end of this month and should finished by 5^th November or even earlier considering intense ground levels surgical military operations targeting the horror network of Hamas tunnels (underground).

On Sunday, Israeli PM Netanyahu said the war in Gaza will be “long and difficult”, adding he will do everything to bring hostages home safe: “We’ll use every possibility to bring them back to their families”. Netanyahu also said the idea of a swap deal of hostages for Palestinian prisoners had been discussed within the war cabinet but there was no decision on the move. Hamas spokesman earlier said: “If the enemy wants to close this file of detainees in one go, we are ready for it. If it wants to do it step-by-step, we are ready for that, too.”

Hamas’s leader said the group is ready for an “immediate” prisoner swap with Israel: “We are ready to conduct an immediate prisoner exchange deal that includes the release of all Palestinian prisoners from Israeli jails in exchange for all prisoners held by the Palestinian resistance”.

Qatar has been conducting back-door diplomacy for more than three weeks, speaking to both Hamas officials and Israel to promote peace and secure the release of hostages. Its mediation last week led to the release of two U.S. hostages (a mother and daughter), and two elderly Israeli women.

As per reports, negotiations between Israel and Hamas aimed at de-escalating the war are continuing but at a “much slower pace” than before Friday’s escalation as increased air and artillery attacks, severing of communications, and Israeli ground incursion affected the truce/ceasefire discussions. But both Israel and Hamas are under great pressure from all sides to have an immediate ceasefire deal after securing all the hostages.

Although Iran is threatening to send troops through the Hezbollah-controlled northern Lebanon border for domestic political compulsion, in reality, Iran will continue to support proxies (Hamas, Hezbollah, and Houthi rebels) and engage in light attack rather than direct military confrontation with Israel/U.S. as in that scenario, Iran will stand to lose both diplomatically, militarily and economically. Hezbollah, on the other side, is sympathetic to Hamas, in reality, it’s also not in a position to join Hamas in attacking Israel directly/indirectly. Hams is increasingly finding itself isolated and Israel is intensifying its surgical operations to eliminate targeted leaderships and rescue as many hostages as possible without going for an all-out ground military operation in Gaza to balance everything.

Bottom line:

The Gaza war may be over within the next few days considering expanded ground operations by Israel to eliminate Hamas terror and secure all most alive hostages through pressure tactics. Israel has to finish the job ASAP to avoid further global hue & cry against increasing civilian suffering. It now seems that Israel is aiming to bomb Al-Quads Hospital in Gaza City to destroy the suspected Hamas HQ underneath the ground of the hospital. Israel has already instructed the hospital authority to shift all the patients there and warned of an imminent air bombardment to destroy the suspected Hamas HQ (tunnels) under the ground there.

For the time being, Israel may secure the hospital and any Hamas terror infra/HQ there and then stop the present aggression/expanded military operation and offer Hamas a ceasefire for a free hostage deal. So far Iran has shown limited reaction and there is little chance of a big miscalculation and an immediate regional conflict. The U.S. is also coordinating with Israel and other Middle East nations to control the situation.

Market wrap:

In the last 7 days, Nifty was dragged by HDFC Bank, INFY, TCS, ICICI Bank, L&T, RIL, Kotak Bank, Bharti Airtel, Bajaj Finance, Asian paints Titan, Tata Motors, and ITC, while boosted by Axis Bank (upbeat report card), HCL Tech, and Coal India. Overall, Nifty tumbled -2.53% for the week. The Indian market was dragged by media, metals, techs/IT, realty, banks & financials, infra, pharma, automobiles, energy and FMCG.

Overall, apart from Israel-Hamas/Gaza/Middle East geopolitical tensions, the Indian market was also dragged by subdued report cards from TCS, INFY, HDFC Bank, Bajaj Finance, ITC, ICICI Bank, and even RIL; although in most of these report cards, EPS was slightly below market expectations, guidance was subdued. So far, Axis Bank, HCL Tech, and Maruti reported earnings beat/upbeat report cards.

Also, there was a market rumor citing ‘Jaipur Satta Bazar” (unofficial betting source at Jaipur circle) that the BJP/Modi admin will lose all the forthcoming five state elections badly and INC (Congress) is set to win big. The five states involved are MP (BJP), RJ (INC), CG (Chhattisgarh-INC), TL (Telangana-BRS/BJP ally) and MZ (Mizoram-BJP/Ally); out of these five states, BJP is now focusing mainly on retaining MP, and snatching RJ and CG from INC as BJP is not a force to reckon with in TL and even in MZ (after recent riots).

As per the latest official opinion polls, in MP, due to some incumbency wave, the ruling BJP is now running neck & neck with INC, while the opposition BJP is set to win big in RJ this time, thanks to the ruling party INC’s infighting and also some incumbency wave and corruption allegation against several top INC leadership including CM’s son! But in CG, despite tight fighting, ruling INC may win thin, thanks to credible local INC leadership.

In TL, the fight will be between BRS and INC and this time, INC may win thin due to the incumbency wave and allegations of various scams against ruling BRS. MZ, a small state may be going for a hung assembly, but INC may eventually form the government this time. Thus, apart from RJ, the BJP may not be able to form a government in any of the other four states and MP will be close. The focus of the market will be on big states like MP and RJ and no one is counting BJP for TL.

In this way, even a disappointing state election result will not affect the June’24 general election (LS) this time also for Modi magic and BJP is set to win big by around +300 seats as the INDIA opposition front is still quite divided in many states, not able to project a PM name to compete with Modi and have divergent politics/policies. Overall, BJP/Modi is set to win big in the 2024 general election on anti-corruption, development, nationalistic, and Hindutva platforms in addition to Modi’s implacable leadership. Many voters are now voting for Modi/BJP at the Federal election, despite voting for regional party or INC at the state election levels.

Nifty reported an EPS of around 858 for FY23 against 809 for FY22; now the projected FY24 EPS is around 927 (assuming +8% CAGR) and at an average PE of 20, the fair valuation of Nifty maybe around 18540, very close to present technical support levels of Nifty (18500~18800-600).

Bottom line:

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future (19146) now has to sustain over 19200 for a rebound to 19355/14475-19600/19775 and rally further to 19875/20055-20200/20300 levels in the coming days; otherwise sustaining below 19150, Nifty Future may further fall to 19090/18870-18625/18490-18275/18075 in the coming days.

Nifty may recover from around 18600-500 area as Israel’s expanded Gaza ground surgical/military operation may be in the last stage of confrontation. Further Fed/RBI pivot may boost Wall/Dalal Street and may also scale lifetime high area by Dec’23 (Santa rally).