Israel-Palestine war: How does it impact Indian market and what should investors do next?

Indian markets declined on Monday, in a knee-jerk reaction, following losses across the globe after a surprise attack by Hamas, a Palestinian militant group, killing over 1,000 in Israel last weekend and the subsequent retaliation by the Israeli military re-ignited geopolitical conflicts in the Middle East.

This latest conflict has sent oil prices surging, reversing the recent decline and further boosting inflationary concerns. Meanwhile, it has also led investors to move towards safe haven assets like gold. If these tensions extend, investors fear that it will lead to the US Federal Reserve keeping rate higher for a longer time thus putting pressure on the rupee and hurting foreign investor inflows in India.

Both Indian benchmark indices Sensex and Nifty shed over half a percent each in intra-day deals today, snapping 2 straight sessions of gains. The broader markets also crashed with the midcap and smallcap indices down around 1.5 percent each.

Israel-Hamas war will add to global geopolitical uncertainty in the Middle East and the higher price of crude. Prolonged escalation and increase in geographical spread can have a negative impact on equity markets in the near term, believe most experts.

What should investors do next?

While experts do believe the near term would be impacted and the markets would remain in the red on the back of this conflict as well as its impact on oil prices, subsequently inflation and other macro worries, they advise not to panic. It will be a good opportunity for long-term investors as they can slowly accumulate high-quality stocks on declines, they suggested.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

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. 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.

Raj Vyas, VP of Research, Tejimandi

“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.”

The instant reaction though was visible on crude oil price as after correcting by almost 10 percent last week, it surged back 4 percent.

Since the earnings season will kick start on 11th October 2023, markets will keenly watch the report card and the management commentary to gauge the trajectory going ahead and state elections starting next month.

Manoranjan Sharma, Chief Economist, Infomerics Ratings

The surprise Israel-Palestine war would have wide-ranging ramifications and repercussions across geographies, economies and sectors. There will be volatility in the bond and equity markets temporarily. Bond yields will harden, the cost of credit may go up for companies, and crude prices will rise if it spills over to the Middle East. Gold may become a safe haven.

This would impact the Indian capital market, the banking sector, the trade deficit, the current account deficit and also to a limited extent, the fiscal deficit.

All this depends on the severity of the Israeli counterattack and the duration.

“My sense is for a swift, bloody war and Hamas to get a debilitating blow. But this is an evolving situation and would further heighten geo-political tensions, which were already exacerbated by the Russia-Ukraine war and the posturing or worse in the Taiwan region.”

Palka Arora Chopra, Director – Master Capital Services

Palestinian Islamist group Hamas launched the largest military assault on Israel in decades. Increasing geopolitical risk in the Middle East could increase oil prices and higher volatility can be expected. This can have a lasting and meaningful impact on oil markets as there can be a sustained reduction in oil supply. Surging crude oil could impact domestic inflation and can see interest rates at an elevated level for a prolonged period. FIIs are continuously selling due to higher bond yields and high crude oil prices could add more issues. One should keep an eye on the nature of the war, as its longevity could have a strong impact. In the stock market, sectors like Paint and chemicals need to be closely watched as it will impact their margins in the short to medium term.

Technical View

Santosh Meena, Head of Research, Swastika Investmart

The ongoing conflict in Israel is an unforeseen event impacting the market, and its effects may take some time to be fully absorbed. Monitoring the situation closely, especially regarding the potential involvement of other actors like Iran, is essential. The possibility of a third front involving Iran is a significant concern as it could trigger a sharp increase in crude oil prices.

From a technical standpoint, the 19300–19250 range is a critical demand zone. Until the market stabilises within this range, it's likely to remain in a sideways pattern, facing a notable obstacle at 19800. A breach below 19250 could lead to a healthy correction, potentially reaching the 18800 level. For short-term traders, it's advisable to exercise caution and not rush into trades. On the other hand, a substantial correction could present an excellent buying opportunity for long-term investors.

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