During the week before, more than a thousand people were killed in an attack in Israel by the Palestinian militant group Hamas. It was anticipated that the market would respond to the current circumstances on Monday, and as a result, the market dropped. On Tuesday, though, the market recovered and ended the day about 1% higher.
Does this imply that the conflict won’t have any effect on the Indian stock market? You would undoubtedly be curious to know the response to this query. Let’s examine the Israel-Palestine conflict and its potential effects on the stock markets in India.
WHAT IS THE IMMEDIATE EFFECT?
The war’s immediate effects are already apparent. The primary effect is on the price of crude oil, which has increased by almost 5% since the start of the war. If the price of crude oil keeps rising, it might have a big effect on some particular equities and the country’s economy as a whole in India.
- In the past two days, businesses that use crude oil as a basis for their products have experienced a decline. The unanticipated price hike could have an effect on the Indian economy in certain ways if it keeps rising and crosses the three-digit threshold.
- As we witnessed in FY23, a significant rise in oil prices has the potential to exert a burden on the Indian rupee. Given that India pays in dollars for its oil imports, an increase in the price of oil imports may raise demand for dollars and depreciate the value of the rupee relative to the dollar.
- Fuel costs will rise in response to rising oil prices, and as we have witnessed in 2022, this could lead to inflationary pressures. Rising fuel prices will drive up transportation and production expenses, which can have an effect on consumers and businesses by driving up the cost of services and products across the economy. Since we have been working very hard to reduce or manage inflation, further increase would have a negative impact on the economy.
WHAT ABOUT OUR RELATION WITH ISRAEL?
Raffinated petroleum products worth between $5.5 and $6 billion are imported or purchased by Israel from India. Israel imported $8.4 billion worth of goods from India in total in FY23. The Global Trade Research Initiative states that higher insurance and shipping expenses for Indian businesses exporting goods to Israel could lower their profitability. Although there hasn’t been a noticeable increase in premium or delivery rates as of yet, if the conflict worsens, premiums could rise on a weekly basis.
Israel is a supplier of machinery, diamonds, pearls, and other precious and semi-precious stones that India buys. Based on the information at hand, Israel accounted for $2.3 billion of India’s total imports in FY23. Problems on the supply side could arise if the dispute intensifies.
WHAT AN INDIAN INVESTOR SHOULD DO?
Investors need to keep a careful eye on the development right now. If the conflict gets worse, the market might have a significant correction and long-term investors might be able to take advantage of this as a buying opportunity. But aside from the effect of rising oil prices, the conflict had little effect on the Indian stock market. But, investors need to keep an eye on how other international markets perform.
On October 11th, the earnings session will also begin. As investors make investment decisions, they must be extremely vigilant and consider both the long-term effects of the conflict and the short-term impact on earnings.