Iran has vowed to take "tough" revenge and global leaders have raised concerns over the the incident and its eventualities. US President Donald Trump, on the other hand, has warned Iran that he has identified 52 Iranian targets and will respond "very fast and very hard" to any reprisal from Tehran.
Oil and gold prices had already surged on Friday after reports surfaced of the General being killed in Iraq, and both the Sensex and Nifty50, along with global indices, tumbled during the day. The same nervousness and concern is likely to follow in the coming week.
"Escalation between US and Iran, will add crude prices and geopolitical tensions impacting the performance in the short-term," said Vinod Nair of Geojit Financial Services.
Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services said: "Markets could be volatile going ahead due to risk of possible retaliation from Iran."
However, there are also some positive global and domestic factors which are likely to provide support to the market in the coming days, including the Trump's recent announcement to sign the first phase of the US-China trade deal.
In a major sign of improvement in the manufacturing segment, the IHS Markit India Manufacturing PMI rose to 52.7 in December from 51.2 in November.
Further, the gross GST collection in December 2019 announced last week, grew by 8.92 per cent year-on-year to 1.03 lakh crore, although remaining below the target of Rs 1.10 lakh crore set by the government. This growth in GST collection is also likely to boost market sentiments, analysts said, along with the government's latest announcement of a Rs 102 lakh crore infrastructure pipeline.
"Few positive domestic data, like improvement in GST revenue and India factory production to 7-month high, has brought a broad-based rally," Nair said.
He added that the global market may also trade in the positive in anticipation of improvement in economy and uptick in steel prices post the announcement of US-China first phase deal to be signed on January 15.
Another major factor for the domestic market sentiments in the coming week would be the corporate earning results for the quarter-ending December, analysts added.
"On the positive side, markets would be looking ahead for signing of the phase-1 of the US-China trade deal along with the December quarterly results and developments prior to the Union Budget," said Motilal Oswal's Khemka.
With all the factors playing their role, the most significant factor to be watched by the investors would be the developments in West Asia and any further movement by the US and Iran on that front, as per analysts.
On Friday, the BSE Sensex slumped over 270 points on tensions and uncertainty in the Middle East, before closing the day's trade at 41,464.61, lower by 162.03 points or 0.39 per cent, on its previous close of 41,626.64 points.
The Nifty50 on the National Stock Exchange (NSE) settled at 12,226.65, lower by 55.55 points or 0.45 per cent, on its previous close.
( With inputs from IANS )