-By Lahari Reddy
As tensions between Iran and Israel grow, the possible impact on global markets, particularly in India, is a major concern. The recent surge in hostilities, as evidenced by Iran’s drone and missile attacks on Israel in reaction to previous clashes, has fuelled worries of a full-fledged Middle Eastern conflict. Due to India’s economic links and reliance on Middle Eastern oil, these developments could substantially impact the Indian stock market. India, which imports more than 80% of its oil, is especially exposed to the changes in crude oil prices that such global tensions often cause. Recent events have already contributed to a considerable spike in Brent crude oil prices, which soared by 6% in the past two weeks alone and are already trading above.
Oil is now trading at more than $90 per barrel. This tendency is worsened by continuous global uncertainty and OPEC’s decision to extend production limits until June 2024, which has resulted in a 17% increase in Brent’s crude prices year to date. This article will look at how the ongoing Iran-Israel crisis may affect the Indian stock market, concentrating on major issues such as the impact of increased oil prices on economic stability and market volatility. Understanding the nuances of the Israel war's influence on the stock market, as well as the overall Israel war's impact on the stock market, is critical for investors and policymakers navigating these unpredictable times.
Top reasons behind the Sensex, and Nifty fall
Escalating Israel-Iran Conflict
There has been fluctuation in the Middle East, greatly influencing the markets' performances. There was a reported casualty of at least six people when an Israeli attack hit the health centre in Beirut, but seven others survived with injuries.Israeli Prime Minister Benjamin Netanyahu announced that he would respond to Iran after Iranian ballistic missile attacks had reached about 200 missiles at Israel.It was dramatic when Iran's missile strikes headed straight to Tel Aviv as it forced Israel to confirm that eight soldiers were killed in operations conducted in southern Lebanon. That aside, the UN Secretary-General Antonio Guterres called it a situation marked by "escalation after escalation."
FIIs are actively selling: The FIIs have liquidated equities so far worth Rs 1.25 trillion this year.Foreign Institutional Investors sold Indian equities in the first nine months of 2024 but were cautious due to uncertainty across markets worldwide. Thus, FIIs thronged cheaper Chinese stocks instead. FIIs sold shares worth Rs 35,977.81 crore in January and Rs 15,962.72 crore in February. In March, they bought Rs 3,314.47 crore while selling Rs 35,692.19 crore in April and Rs 42,214.28 crore in May.
It acquired Rs 2,037.47 crores in June and in July equities were acquired to the tune of Rs 5,407.83 crores. It was a sellout in August as FIIs sold equities to the tune of Rs 21,368.51 crores but bounced back in September by buying equities to the tune of Rs 15,423.32 crores.FIIs sold equity shares worth Rs 5,579.35 crore on October 1; investor caution about the market conditions continued to show.This may go on as the stress here is on getting capital to bull Chinese equities and the under-valued Hong Kong market. "The FIIs may continue selling since Indian equity markets are over-valued," says V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Oil surge: Although crude oil prices have remained somewhat volatile, they have risen above 5 percent in the last two days as tensions in the Middle East increase.Missile strikes by Iran against Israel have raised concern in the region and pushed up the price of oil. Israeli threats of retaliating, particularly targeting Iran's oil infrastructure, might further push up the prices. OPEC+ concluded its meetings this week but pledged to raise output in December. US crude oil inventories rose by 3.9 million barrels, much more than what analysts had projected-down by 1.5 million barrels, said the EIA. The rise tempered recent increases in crude oil prices.Crude oil should remain volatile today too. Supports at $69.55-68.90 and resistance at $71.70-72.40. Support in INR at Rs 5,880-5,800 and resistance at Rs 6,050-6,140, says Rahul Kalantri, VP at Mehta Equities.
Technical Indicators: Nifty has failed to break above 25,970 and this sets a warning for a deeper correction. Declines can target 25,600-24,600 in such a case. Regarding the same, Market Strategist at Geojit Financial Services Anand James commented:"The Nifty is approaching its 20-day moving average at 25,500, which may attract a short-term bounce. However, selling pressure at higher levels may kick in. The near-term resistance could be the recent peak of 26,277; hence, traders have to follow a "sell on rise" strategy till Nifty sustains above 26,000. Support levels to watch will be at 25,100 and 24,800," Meena said.Geopolitical tensions and poor market sentiment have made investors cautious, causing significant volatility in the Indian stock market.
Other impacts of the Israel war on Indian Stock Market
Global Economic Uncertainty: Wars create extreme economic uncertainty. Businesses may postpone investment, consumers may cut their spending, and the overall speed of the economy can slow down. Uncertainty under such scenarios renders investors unwilling to invest their money in the equity market, thus potentially creating a recession.
Disrupted Trade: The war would disrupt routes, but goes on to further hamper the Indian company's ability to import and export goods. Such an interruption results in material shortages, higher transportation costs, and, in the long run, decreased profits for such companies. Each of these could help to negatively affect the stock price.
Currency Fluctuation: Wars cannot predict currency exchange. When the Indian rupee starts falling, import costs for Indian companies can rise and degrade the competitiveness of Indian exports in the international market. Both situations can adversely affect the profits of businesses, which will, in turn, affect the stock market's performance.
Cyberattack: The war can lead to a cyberattack, targeting critical infrastructure or financial institutions. It may create havoc in the business world and evoke concerns about the security of the financial system, deterring investors away from the stock market.
Defence Spending Increase: The Indian government may have to raise defence expenditures if a conflict in the Middle East does indeed begin to unfold. This would not help the economy, as such expenditures would take resources away from other sectors; it may negatively affect growth and diminish investor confidence in the Indian market.
Commodity Price Fluctuations: But it is not just about oil: the war may stir prices of other commodities including metals and food products, creating chaos in the supply chain and making costs go up further for companies in India.
Global supply chain disruptions: A war in the Middle East can disrupt the global supply chain threatening Indian companies to receive the necessary materials and components. Such interruptions may have the impact of delayed production and shortage, thus affecting company performance and stock prices.It must be stated that these are potential impacts, and the impact would depend upon the magnitude and the length of the conflict.
Indeed, tensions between Iran and Israel were sending ripples across global markets but mainly spooked the Indian market, which relies on Middle Eastern oil. So a wider regional conflict brings in uncertainties and cuts across all economies that heavily rely on global energy supplies like India's. With escalations in conflicts, the Sensex has been pretty volatile so far in 2024-the oil price fluctuation and investor sentiment being the prime manifestations. That is critical since India imports massive crude oil volumes. The energy, tire, and paint sectors are thus bearing increasing cost pressures and therefore squeezed margins and earnings. Developments in the Middle East region is also likely to impact India's stock markets. It is, therefore, now up to investors and policymakers to keep an eye on the conflict and to be prepared to respond accordingly to the movement in the market. Of course, sound economic fundamentals in India would suggest some degree of resilience; however, international geopolitical instability would force strategic planning to safeguard investments and the economy during international crises.
Comments