Iran-Israel Tensions: How do they impact Indian stock market? Here’s what experts say

Over the weekend, Iran launched over 300 drones and missiles against Israel following an Israeli strike on its embassy in Syria. In the midst of this situation, the US and other allies of Israel have called for restrain. Notably, US President Joe Biden cautioned Prime Minister Benjamin Netanyahu that the US would not participate in a retaliatory action against Iran, as reported by Reuters.

Even though the Indian market sank today, experts do not see any long-term repercussions of the Middle East conflict on the Indian indices.

Read here: Stock market crash today: Why is India stock market down today? Explained with 5 reasons

“The escalation in the potential conflict between Iran & Israel is a serious development and will likely adversely impact oil pricing. The Indian markets will be pressured over the short term as well. However, the Indian economy’s strong fundamentals and growth trajectory remain firmly in place over the long term,” said Samir Bahl, CEO – Investment Banking, Anand Rathi Advisors.

Meanwhile, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, as well, noted that signals from the crude market indicate that the tensions are unlikely to escalate but advises caution to investors in the short term

“There are many headwinds that weighed on markets today: the renewed conflict in the Middle East, proposed changes in the India-Mauritius tax treaty, and the hotter-than-expected US inflation are negatives. But partly these negatives are in the price since a retaliation from Iran was expected and the higher US inflation was discounted by the market on Friday. Signals from the crude market indicate that the Iran-Israel conflict is unlikely to escalate. President Biden has clearly indicated that he doesn’t support Israeli retaliation. So, the situation may calm down. However, investors have to be guarded since the element of uncertainty is high during a tense situation like this,” said the expert.

Read here: 5 biggest concerns around Iran-Israel tensions that could impact Indian stock market

But in the short term, what are the important levels investors should watch out for?

Ajit Mishra – SVP, Research, Religare Broking, stated that markets are reacting largely in line with other global counterparts on the news of fresh escalation in the Middle East. However, after the initial downtick, we are seeing a rebound in select pockets, which is helping the index to recoup losses.

On the index front, we are eyeing the 22,150-22,350 zone to act as a cushion ahead and any rebound towards the 22,600-22,800 zone may attract profit-taking. Meanwhile, traders should continue with a stock-specific approach and prefer a hedged approach.

Besides, the escalating tension in the Middle East has lifted bullion’s safe-haven appeal for the bullion market and also prompted the possible oil supply disruption from the major producing nations. We may see a pause after the recent rise to the $90 mark and it is likely to hover within the $87-$92 zone but with a positive tone.

Read here: Gold price in an unshakeable bull market, says Goldman Sachs; raises target

Where do we go from here?

Manoranjan Sharma, Chief Economist – Informerics Ratings

Iran fired 300 missiles at Israel. Most of these missiles were successfully defused by Israel. But this extensive onslaught marks another flashpoint in the Israeli-Palestine conflagration, a significant worsening of the geopolitical situation in general and the Middle East in particular.

While no World War III is on the anvil, at least not yet, there is a clear possibility, nay likelihood, of horizontal escalation and retaliatory and even deterrent strikes by Israel.

Going forward, the stand of the government of the USA is likely to be a major factor in this rapidly evolving situation.

This war has wide-ranging ramifications and repercussions across geographies, economies and sectors with volatility in bond and equity markets though temporarily. Bond prices will fall, the cost of credit will rise for companies, crude prices will rise and stock markets will fall both because of reduced profitability of the corporate sector and heightened uncertainty. A sustained reduction in oil supply and consequently surging crude oil prices would raise domestic inflation and interest rates could remain persistently high for long. The disconcerting mix supports the safe-haven dollar and gold.

Read here: Oil prices subdued, energy security concerns escalate on West Asia tensions

Sectoral impact

While surging oil prices have a cascading macro-economic impact across sectors that could trigger a sell-off, oil-based sectors like automobiles, transportation, aviation, paints, tyres, cement and chemicals could take the greatest hit. The market could be disrupted by the war-related risk but hopefully, the supply-demand oil dynamics would continue to be unfettered, said Sharma.

The Indian stocks with an Israeli connection include Adani Ports, Sun Pharmaceutical, Dr. Reddy’s and Lupin, NMDC, Kalyan Jewellers and Titan. Further, oil marketing companies could be adversely impacted. The war could slacken India’s plan of building an India-Middle East-Europe Economic Corridor as reflected in the prices of railway stocks like IRCON, Jupiter Wagons, and RVNL, he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 15 Apr 2024, 03:55 PM IST