Israel-Hamas War: A surprise attack by Iran-backed Hamas, a Palestinian militant group, in the past weekend, has re-ignited geopolitical tensions and sent oil prices surging. However, the Indian equity markets remained resilient on Monday without witnessing any panic sell-offs.
The Israel-Hamas conflict has brought huge uncertainty towards various Indian companies that have operations in Israel or are otherwise exposed to the war-hit country.
Adani Ports, which operates the Haifa port in Israel is also under pressure, with the stock falling nearly 5 percent on October 9. The Gautam Adani-led group firm said it is closely monitoring the action on ground and is prepared with a business continuity plan. The overall contribution of Haifa in APSEZ’s numbers is relatively small at 3 per cent of the total cargo volume.
Shares of Sun Pharmaceutical, which owns a majority stake in Israel’s Taro Pharmaceutical, fell around 2%. Generic drugmaker Dr. Reddy’s and Lupin are also under investor scrutiny due to any potential impact on sector bellwether Tel Aviv-based Teva Pharmaceutical.
Tata Consultancy Services (TCS) has several big-ticket projects, including government ones, in Israel. The IT major has over 1,000 employees in the country, and is closely monitoring the safety of its employees currently stranded in Israel, it said.
Besides IT majors like Wipro, Tech Mahindra and Infosys, State Bank of India (SBI) and Larsen & Toubro (L&T) also have a presence in Israel.
Oil marketing companies (OMC) including Indian Oil Corporation (IOC), Hindustan Petroleum Corporation, and Bharat Petroleum Corporation Limited remain in the spotlight as escalated geopolitical tension can lead to crude oil supply disruption from the Middle East.
Impact on the Indian Markets
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the Israel-Hamas conflict has introduced a huge uncertainty for the markets.
“Nobody knows how this war is going to evolve. From the market perspective it is important to understand that even though the death and destruction are tragic, presently it is unlikely to cause major disruption in oil supplies, thereby, impacting major oil importers like India,” Vijayakumar said.
“But the situation will change if Iran, a major Hamas supporter, is drawn into the war. That can disrupt oil supplies causing a spike in crude, which can trigger a risk-off in the market. This is a time to be cautious. Investors may refrain from taking big risks. Wait for the developments to unfold. Long-term investors can slowly accumulate high quality stocks on declines,” he said.
“We don’t think there is any cause of panic as far as the Indian stock market is concerned but the performance will be mirrored as to how the global markets do. At the moment we are not concerned because this Israel-Hamas is an evolving situation and needs to be tracked for a couple of days before we react to it,” said Raj Vyas, VP of Research, Tejimandi.
Crude Oil on the Boil
Add to global geopolitical uncertainty in the Middle East and higher crude oil rates, the war adds another layer of uncertainty for investors.
“Events in the Middle East over the weekend (i.e. attack on Israel) presents a risk for stocks as such events could possibly lead to a surge in oil prices thus putting at risk the recent US disinflation narrative, in our view,” said Nomura.
A large part of the impact on India depends on whether Iran, a major Hamas supporter, is drawn into the war.
Israel and Palestine are not oil producers, but Iran is. Deven Choksey, MD at DR Choksey Finserv noted that while US sanction continues on Iranian oil, Iran’s supply has increased in recent years.
He noted that Arab nations such as Saudi Arabia and Egypt do not support the Hamas movement. He noted that OPEC nations would be mindful of not increasing the oil price beyond 10-12 per cent, as they have understanding in practice with USA to ensure that oil prices are not increased beyond certain levels.
“Thus , under the knee-jerk reaction to this attack prices may go up by 10-12 per cent in near term. US is backing Israel and Biden will ensure that US opens up their oil reserves to cool down the prices in case they go up beyond 10-12 per cent to control inflation in US and also Because US would not like Russia to benefit from higher crude oil prices,” Choksey noted.
Choksey said oil prices may not stay at elevated levels, beyond short-term moves.
