From Gaza to Dalal Street: Assessing Israel-Hamas conflict impact on Indian stock market

Israel’s recent security breach, marked by Hamas and Islamic Jihad’s unprecedented rocket attacks and border incursions, has ushered in a seismic geopolitical shift. The resulting casualties, including over 1,000 deaths in Israel, have reignited global tensions, sparking a surge in oil prices and market turbulence. This surge, coupled with heightened gold demand, carries implications for investors worldwide.

The ramifications extend to India’s markets, potentially impacting inflation, foreign equity inflows, and the rupee’s value. The conflict’s duration will shape the Fed’s ‘higher-for-longer’ interest rate outlook, adding another layer of uncertainty.

Global Financial Markets

The unexpected assault on Israel by Hamas has sent shockwaves through the Middle East stock markets, leading to a turbulent start to the week. Major indices, including Israel’s TA-35 (-5.2%), Riyadh’s Tadawul All Share (-1.2%), and others in Kuwait, Qatar, Oman, Bahrain, and Egypt (-2%), suffered significant declines. This sudden turmoil underscores the regional and global impact of the conflict.

Asian markets displayed mixed performance, while early Monday saw a 0.7% decline in US stock futures due to escalating Middle East tensions. Meanwhile, MSCI’s Asia-Pacific index outside Japan rose by 0.2%.

NIFTY 50 and SENSEX

TheNifty 50 commenced the trading day at 19,539.45, slightly down from the previous close of 19,653.50. It experienced a 0.90% decline, touching a low of 19,480.50. Likewise, the Sensex initiated the day at 65,560.07, showing a 0.85% decrease from its previous close of 65,995.63, with a day’s low at 65,434.61 in Monday’s trading session.

Impact on India-Israel Trade

The Israel-Hamas conflict may result in increased insurance premiums and shipping costs for Indian merchandise exporters. India’s Export Credit Guarantee Corporation (ECGC) may charge higher risk premiums for firms exporting to Israel. Short-term disruptions are likely if major Israeli ports—Haifa, Ashdod, and Eilat—face operational issues.

Bilateral Trade Outlook

Bilateral services trade between India and Israel stands at approximately USD 1.3 billion. However, the impact may remain limited unless the conflict escalates significantly. The overall impact on India-Israel trade, encompassing merchandise and services, depends on the war’s duration and intensity.

Current Trade Snapshot

According to a Business Standard article, in 2022-2023, India’s merchandise and services trade with Israel is estimated at USD 12 billion. India maintains a merchandise trade surplus of USD 6.1 billion, driven by robust exports such as diesel (USD 5.5 billion) and cut and polished diamonds (USD 1.2 billion). Conversely, notable imports encompass rough diamonds (USD 519 million) and electronics components (USD 411 million).

Strong Collaboration

India’s services exports to Israel encompass a wide array of IT services, such as software development and IT consulting. Additionally, both nations collaborate extensively in research and development within sectors like agriculture, water technology, and renewable energy.

Indian corporate giants, including Sun Pharma, Tata Consultancy Services, Wipro, Tech Mahindra, State Bank of India, Larsen & Toubro, and Infosys, have established a significant presence in Israel.

Derailed Dreams

The long-term effect of the Israel-Hamas conflict extends to the anticipated international transhipment corridor connecting India, the Middle East, Israel, and Europe. This ambitious project, planned during the G20 summit, was contingent on lasting peace between Israel and its Arab neighbours. However, the conflict’s disruption may lead to substantial delays or even endanger the realization of this vital infrastructure initiative, impacting logistics, construction, and railway stocks in India.

In conclusion, the Israel-Hamas conflict presents multifaceted challenges for India, affecting trade, investor sentiment, and infrastructure projects. However, for long-term investors, this turmoil also signifies an opportunity to acquire high-quality stocks. While uncertainties persist, India’s adaptability and resilience remain key assets in navigating these challenges.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.