Impact of Israel War on Indian Stock Market
The complex geopolitical problem of Israel-Hamas is causing waves in financial markets around the world. In this context, we at Online SIP look at how it might affect the Indian stock market.
The Israel-Hamas conflict, situated in the Middle East, can have several fundamental and sentimental impacts on the Indian stock market, which need to be analyzed to understand its potential effects on investments:
Fundamental Impact:
§ Oil prices:
Instability in the Middle East disrupts oil supplies, raising oil prices. India, a major oil importer, faces higher import bills, potentially increasing trade deficit and inflation.
§ Inflation:
Higher oil prices mean increased fuel costs for citizens and can indirectly raise prices of goods and services, contributing to inflationary pressures in the Indian economy.
§ Economic Corridor Impact:
Regional instability can disrupt India’s plans for the India-Middle East-Europe Economic Corridor (IMEEC), affecting long-term economic growth and trade expansion between Asia, the Arabian Gulf, and Europe.
Sentimental Impact:
§ Investor Confidence:
Geopolitical conflicts, like the Israel-Hamas war, breed uncertainty in global markets, prompting risk-averse investor behavior, which can lead to capital outflows from emerging markets like India and cause stock market fluctuations and declines.
§ Foreign Investments:
International investors may become cautious about investing in India due to global uncertainty. They may withdraw or delay their investments, which can affect Indian stock markets negatively.
How Rising oil prices impact fundamental of economy
The Israel-Hamas confrontation, which might involve Iran and Lebanon, could disrupt world crude oil supply, driving up prices. As a result, Indian households may suffer budgetary difficulties. Recent oil supply concerns have already caused prices to rise, and if Iran joins the battle, oil prices may rise even further, impacting consumer goods prices in India.
If the conflict continues, consumer good prices like smart TVs and washing machines may rise in November. Rising oil prices impact production costs, especially plastics and logistics, making goods more expensive to produce and deliver.
Rising oil prices (FMCG) may also be impacted, as FMCG companies are already dealing with weak demand. Indian FMCG companies with revenue from the Middle East, like Dabur and Marico, are especially vulnerable to this conflict’s economic consequences.
For Indian FMCG companies like Dabur and Marico, which earn a portion of their revenue from the Middle East, the conflict is concerning. For instance, Dabur derives 25% of its international business revenue (amounting to over Rs. 2800 crore) from the Middle East, with countries like Egypt in North Africa contributing 23%.
Surging oil prices pose a global inflation threat. Major economics like the US, India, and China, which heavily import oil, may face high inflation if oil prices stay high. Rising oil prices also increase production and energy costs, contributing to inflation. These inflationary trends can make it harder for central banks to control inflation and may keep interest rates high for a while, which could impact global economic growth and investor expectations.
How IMEC (India Middle East Europe Corridor) affect India long term Growth Story
IMEC connects India, the Middle East, and Europe to boost transport efficiency, reduce costs, create jobs, and cut emissions. Signatories include India, the US, Saudi Arabia, UAE, the EU, Italy, France, and Germany. Key ports connected are in India, the Middle East, Israel, and Europe.
IMEC offers significant economic benefits for India:
1. Enhanced Trade Opportunities:
IMEC enhances trade for India, cutting transit times and making trade with Europe 40% faster than the Suez Canal route.
2. Stimulated Industrial growth:
IMEC spurs industrial growth by creating efficient transport networks, facilitating easy movement of goods, and benefiting regions connected to the corridor.
3. Job Opportunities:
IMEC leads to job opportunities as improved connectivity expands economic activities, requiring skilled and unskilled labor, boosting employment.
4.Energy Security and resource access:
IMEC ensures energy security by providing reliable access to resources from the Middle East, stabilizing India’s energy sector and supporting economic growth.
India – Israel Trade:
The situation in west Asia doesn’t immediately impact India’s trade with Israel, but if the conflict escalates, it could lead to challenges in trade.
India’s exports to Israel, led by petroleum products, make up 1.8% of India’s total merchandise exports. Israel purchases about $5.5 – $6 billion worth of refined petroleum products from India. In FY23, India’s total exports to Israel reached $8.4 billion.
On the flip side, India buys machines, jewelry, and precious stones from Israel, spending about $2.3 billion in the last year. If things get worse, it could make India’s money (rupee) worth less, and the government might need to do something about it. This could also make the price range for the rupee shift to be around RS. 83-84.
Impact on trade:
The Israel
Hamas conflict may significantly impact India’s trade. India’s exports to Israel grew by 76% to $8.4 billion, while imports reached $2.3 billion in FY23. Disruptions at major Israeli ports could affect shipments of various goods.
The conflict’s potential impact on India’s trade with Iran is a concern, especially regarding the chabahar port agreement. Iran supports Palestine and denies involvement in the attack.
Experts are concerned about disruptions at Israel’s major ports, Haifa, Ashdod, and Eilat. warns that India’s $10.7 billion trade with Israel could be severely affected if operations at these ports, handling various shipments, are disrupted.
How it could worry investors, especially those from other countries who owns 23% of our market:
If things get bad, it can affect the financial health of companies. When that happens, people might not think company values are reasonable because they won’t expect much growth. In simple terms, investors may decide to take their profits and leave.
History shows us that during times like wars or natural disasters, investors often move their money to safer options like bonds, fixed income, or gold.
Foreign investors might do the same, shifting their money out of India and into their own countries or these safer options like bonds or gold.
As per the news, the selloff was more intense in the mid & small cap spaces as BSE midcap index closed with a loss of 1.22% while small-cap index fell 1.72%.
The Israel-Hamas conflict has rattled global equity markets, with investors seeking safe-haven assets. US stock futures and Asian markets declined, while gold prices rose 1.2%. The dollar and Japanese yen strengthened. Long-term investors are advised to accumulate quality stocks cautiously. Foreign institutional investors continue selling due to rising bond yield and oil prices.
Analysts believe there won’t be an immediate major impact on the Indian stock market.
However, monitoring the situation closely, especially regarding potential involvement of Iran, is crucial. The technical standpoint indicates a critical demand zone for Nifty 50 between 19,300 and 19’250 with potential for a correction if it breaches the lower range.
Foreign investors may push Indian stock market down, particularly affecting small and Midcap stocks that were already highly valued before the conflict.
The key questions is if this market correction will be short or long term, depending on the conflict’s severity. Analysis involves considering Indian Investors and institutional funds and sentiments.
Indian equity mutual funds have a total of almost 28 lakh crore rupees. Each fund keeps around 2-5% of their money as cash, and lots of people are investing regularly through SIPs, so there’s a good amount of money in the system.
This money can help prevent the market from falling too much. But it’s hard to predict what will happen because it’s not in our control.
Plan and manage your investments wisely.
Suggestion for Existing Investors
For existing investors, it is recommended to check their current investments and start following balanced allocation strategy, avoiding aggressive moves until market conditions shows signs of improvement. Shifting funds into balanced advantage or multi assets is a good choice.
Suggestion for New Investors
For existing investors, it’s advisable to kickstart their investment journey with a systematic investment plan (SIP) while ensuring a well-diversified portfolio allocation. Alternatively, they can opt for the straightforward approach of investing in multi asset application funds. In such funds, professional fund managers take care of the task of dynamically managing investments across various asset classes, including equity, bonds, gold, and real estate. This simplifies the wealth-building process as it revolves around a single category.
Within this category, investors have the flexibility to choose a fund that aligns with their risk profile and investment strategy.
For instance, individuals seeking to invest in small and midcap stocks for potentially higher returns but are concerned about potential market downturns can explore options like the Motilal Oswal Balanced Advantage Fund.
Follow this link to understand more about the fund
List of Best Balanced Advantage Funds:
ICICI Pru Balanced Advantage Fund
Tata Balanced Advantage Fund
Baroda BNP Paribas Balanced Advantage Fund
Motilal Oswal Balanced Advantage Fund
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To receive personalized guidance, consider speaking with an expert at SIP Online. Additionally, you can explore informative videos on the best Balanced Advantage funds by following the provided link.
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