The ongoing war between Israel and Hamas has unnerved both equity and commodity markets sending key benchmarks running for cover.
Global stocks were under pressure following the escalation in conflict between Israel and the Palestinian Islamist group Hamas, pushing investors toward haven assets. The geopolitical conflict along with the macro-economic uncertainties in Europe and China, hawkish central banks and already rising oil prices added to investor woes.
The bellwether Sensex opened down with a gap of 436 points and dipped further to close with a loss of 483 points at 65,512 as almost all the index constituents, except for three, ended up in red.
FPIs offloaded shares worth ₹997 crore on Monday, while domestic institutional investors bought shares worth ₹2,661 crore, provisional data showed. FPIs have sold shares worth over ₹7,700 crore this month, excluding Monday.
Top losers
Adani Ports & SEZ was the top Nifty loser Monday, down 4.9 per cent. Other top laggards include Hero Motorcorp (2.7 per cent), HDFC Life (2.5 per cent) and M&M (2.2 per cent).
All sectors ended in the red with major selling seen in PSU banks, metals, and consumer durables down 1-2 per cent. Volumes on the NSE were the lowest in several weeks.
Volatility ahead
“Concerns over rate hikes after strong US jobs data and a surge in oil prices due to war in West Asia made investors cautious. In the near term, we expect markets to remain volatile amid geopolitical stress and inflationary pressure ahead of CPI data to be released by the US, Europe, and China later during the week,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.
The unexpected flare-up in Israel is expected to push up crude oil prices and pose a major challenge for the strong domestic economic growth. Siddhartha Khemka, Head (Retail Research), Motilal Oswal Financial Services said a surge in crude oil prices due to war in West Asia made investors cautious and markets will remain volatile amid geopolitical stress.
Brent crude oil prices surged over 4 per cent on MCX to ₹7,169 a barrel amid worsening political instability. The rise in crude prices is a major concern for India as it relies heavily on oil imports to meet energy needs.
Gold prices, which were trending down till recently, have suddenly gained ₹793 per 10 grams to ₹57,332 on Monday. If the conflict continues to escalate, experts predict that gold prices may rise further, affecting gold imports and rupee value against dollar.
Ajay Kumar, Director, Kedia Commodities, said disruptions in global trade, rising energy prices and appreciation of the Indian rupee pose challenges to India’s trade and economic stability. While the immediate consequences may be disastrous, the situation remains fluid and further escalation of the conflict may exacerbate these challenges, he said.
Repercussions
In FY’23, exports to Israel was at $8.4 billion, while imports was $2.3 billion. Moreover, the ports in Israel, particularly that of Ashdod and Haifa, are vital for global trade and their closure will disrupt global supply chain pushing up prices of raw material and finished products across sectors.
The disruption of maritime trade also impacts other regions of Asia, Europe and North America as delays and disruptions in one corner of the world have a domino effect across the globe.
For Indian exporters, the war could lead to higher insurance premia and higher freight costs. The Export Credit Guarantee Corporation may charge a higher risk premium on exporters to compensate the uncertainty associated with shipments to conflict zones.
Shrey Jain, Founder and CEO SAS Online, a Deep Discount Broker, said given the current situation adopting a “wait and watch” approach appears more prudent and it is recommended to focus on hedging existing positions without taking substantial risks.