Impact of the Israel-Hamas conflict on Indian stocks

 Impact of the Israel-Hamas conflict on Indian stocks

In the financial markets, geopolitics is frequently disregarded.

Investors and traders don't believe it to be as significant as other market-moving factors for reasons that are best known to them.

The Russia-Ukraine war served as the best illustration of this. Around a year prior to the start of hostilities, Russia's war preparations were clear. In actuality, at least a few months before February 2022, the writing was already on the wall.

But back then, practically anyone in the financial markets wanted to accept it. People were trading jokes on social media about how Ukraine hadn't been invaded up until a few days before the war.

The start of the conflict on February 22 transformed the mood of the entire world's financial markets. It shouldn't have come as a surprise, but it did. Everyone recalls the stock market devastation that followed.

The financial news is once again dominated by geopolitics. But this time, something is different.

It was difficult to predict the Israel-Hamas conflict. Everyone was aware of the regional tensions, but no one could have foreseen the intensity of the confrontations.

Investors and traders will need to review their individual portfolios and the state of the market once more.

The main concerns are how the war would alter the macroeconomic landscape for the Indian markets and which equities will be severely impacted.

Let's examine the responses...

The first and most visible effect this war will have on the market is the gloomy mood it will create.

In a reflexive move, it was anticipated that Indian stock markets would decline today.and they have already.

Crude oil prices and the US dollar will be affected on a macro level as well. The price of crude oil has been rising over the previous few months, and the war will further prolong this trend.

The fact that India is a significant oil importer is terrible news. Input costs and fuel costs will increase as crude oil prices rise. This will maintain high inflation. Although it was predicted that inflation would decline over the following 12 months, it is anticipated to stay high in the near future.

The good news is that India has enough crude oil reserves to cover short-term needs. The nation's oil minister acknowledged this. However, if the conflict continues, prices will rise and, in the worst event, there may be some supply shortages.

This battle is probably going to be good for the dollar index. From a point slightly around 100 in the first week of July to about 107 today, the US dollar index has already risen. The rupee might be put under strain if it continues to strengthen.

While a weakening rupee is terrible news for importers, it may provide exporters with some short-term relief.

Overall, regardless of how long or in which direction this war goes, it has once again highlighted the significance of geopolitics for market investors. You do so at your own peril.

Let's now examine several Indian businesses that this war might have an impact on.

First Adani Ports

Today, the share price of Adani Ports is down roughly 5%.

The market would not have been shocked by this drop. The Haifa port in northern Israel is owned by Adani Ports. With a local partner, it runs the port after completing the acquisition in January of this year for approximately US$1.03 billion.

Investors are worried despite the fact that the fighting is primarily in the country's south and Haifa port hasn't been targeted by Hamas. Critical infrastructure inside of Israel can become targets if the conflict widens as many anticipate.

The corporation has stated in a statement that only 3% of their cargo volume comes from the port, and they have a business continuity plan in place just in case.

Sun Pharma, #2

Israeli company Taro is a subsidiary of Sun Pharma.

The most recent information from the business indicates that some of the workers may be called to active duty in the conflict. This might have a significant effect on output.

The overall consolidated financial results of Sun Parma won't likely be significantly impacted by this, though. The business has stated that it does not anticipate the war having a substantial impact on production. This is presumably the reason why the market is now not overly concerned about the share price of Sun Pharma.

But anything might happen. It would be wise to keep an eye on the company's news throughout the next days.

Oil Companies, #3

It makes sense that the stocks in the energy sector have fallen today. The margins of these companies will suffer as a result of rising oil prices.

This is because, as a government-owned company, they won't be allowed to charge exorbitant rates for their goods, and if they do, there is a good chance that a windfall tax will be placed on them.

Despite having strong financials, these companies are in a difficult situation. They don't gain anything from changes in the price of crude oil. However, in the short term, their profitability and margins can be affected.

PSU Banks, #4

The current decline in PSU bank share prices is not shocking. The influence of the conflict on India's inflation is the cause.

This year, these banks have been flourishing. The strengthening fundamentals and cheap interest rates were the key causes of this.

There is a possibility that the RBI will hike rates if inflation in India continues to be high as a result of high crude oil prices. In this case, the banks would have to demonstrate that the loans they provided during the post-covid boom were not dubious.

The market will feel more secure if the non-performing assets, or NPAs, of PSU banks continue to drop or at the very least do not rise. However, these concerns will have an immediate impact on these equities.

Paint Stocks No. 5

The paints sector is the one that always suffers greatly when crude oil prices rise. Due to this, paint stock prices are lower today.

Crude oil derivatives are the primary raw materials used in the production of paints. These input prices are outside of the companies' control. As a result, if crude oil prices increase, their margins suffer.

This is occurring once more. The recent increase in Brent crude oil prices above US$ 90 per barrel was thought by the market to be a passing trend. The price of crude oil had started to decline and that might have been accurate.

However, if the fighting intensifies, it's possible that this battle would keep crude oil prices higher for longer. This would be extremely terrible news for the entire paints industry.

Despite the positive long-term outlook for these businesses, shareholders of these equities should pay particular attention to the profit margins.

Conclusion

The effects of conflict are once again being felt in the marketplace.

At first, it was thought that the Russia-Ukraine war would only last a few weeks or months. More than a year and a half had passed. No indication of a settlement is present.

The world could survive without another protracted conflict. The best-case scenario would be for this war to finish quickly.

Investors, however, need to be aware of the likelihood of a protracted conflict and its ramifications.