Israel-Hamas War and its Potential Implications on the Indian Stock Market
Israel -Hamas war, a geopolitical conflict has an impact that goes beyond its borders. We can see the ramifications in the Indian economy as well, particularly in the Indian stock market. In this blog, we will have a look at the war’s impact on the Indian stock market.
Impact on the Indian Economy
#1.Triggers Inflation
A surge in oil prices puts inflationary pressure on the Indin economy. As fuel prices rise, it leads to higher transportation and production costs, leading to increased prices for goods and services. These inflationary pressures impact businesses and customers invariably. Thus, inflation will adversely affect the economy.
#2. Influences the exchange rate of the currency.
India pays its oil imports bill in US Dollars and an appreciation of the dollar results in the depreciation of rupee against the dollar. Therefore, a significant surge in oil price exerts pressure on the Rupee and causes its depreciation.
#3.Effect on the trade balance
Since India is a major importer of crude oil, fluctuations in the global oil market significantly impact India’s trade balance. As the oil price surges, the cost of oil import spikes. Subsequently, India has to allocate more for the oil import budget, resulting in a trade deficit. Thus, it puts pressure on India's account balance.
Impact on the Indian Stock Market
#1.Various Sectors in the Indian Stock Market.
Rising crude oil prices and geopolitical tensions reflect across industries. For instance, as the input cost rises, paint and chemical industries will have to confront short and medium-term margin pressures. As a result, stocks in these industries may see a fall or decline. On the contrary, energy and commodity sectors may benefit from an increased oil price leading to the stock price increase.
#2.Israel-Related Stocks and Indian Stock Market.
Analysts talk about the Israel-related stocks. Companies such as Dr. Reddy's, Torrents, Lupin, and Sun Pharma, which hold a significant stake in Israel's Taro Pharmaceutical, may bear the brunt of market fluctuations and volatility. Further, companies like TCS, Wipro, NMDC, and Kalyan Jewelers which have operations in Israel may encounter issues in their market performance.
# 3.Inflation and the Indian Stock Market.
To combat inflation, the RBI may raise interest rates. Higher interest rates have an impact on the stock market, as borrowing costs for businesses increase. It limits the profitability and slows down the economy. Its ripple effects will be visible in the Indian stock market.
#4.Foreign Institutional Investors in the Indian Stock Market
Higher bond yields, often connected with growing interest rates, can render fixed-income investments more attractive. This can pave the way for FIIs to sell equities and reallocate their investments to bonds or other fixed-income assets. In scenarios where FIIs are net sellers in the stock market, there may occur a downward pressure on stock prices.
Conclusion
Geopolitical tensions like the ongoing Israel-Hamas war can lead to volatility in the financial market. Its impact on the Indian stock market depends on the duration of the conflict. Prolonged tensions create negative impacts and affect investor sentiments adversely.
If you are a short-term Stock Market Trader, it's prudent to avoid hasty decisions and think twice before rushing into trades. Conversely, if you are a long-term investor, a significant correction may present a promising buying opportunity.
In conclusion, the Indian stock market may not reflect a significant impact of the Israel -Hamas war. However, as a trader, close monitoring is needed as there may be chances to escalate the tension if other parties get involved in the war. Hence, it is prudent to have a tab on the Nifty 50 index.