‘Kaal’ can become oil shock for Indian market! Will investors’ money be lost?
Rising tensions in the Middle East, especially between Iran, Israel and the US, have shaken the global economy. Indian stock markets, which were already under pressure due to sluggish profits and global slowdown, are now facing a new challenge ‘oil shock’.
India imports a large part of its crude oil needs, so the surge in oil prices due to the war can directly deteriorate the health of the country’s fiscal position, currency (rupee) and stock market and Indian markets can be one of the countries most affected by this crisis in Asia.
1. Iran war and oil shock – deep impact on Indian equities
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Indian benchmark indices, Nifty 50 and BSE Sensex, may see heavy pressure in the coming days. Experts say that rising crude oil prices are like a double blow for oil importing countries like India. According to Goldman Sachs, if Brent crude prices rise by 20%, regional corporate earnings could fall by about 2%. According to TOI report, Societe Generale also believes that India’s performance may remain weak compared to other global markets due to excessive dependence on fuel.
2. All-out attack on the economy
Rising oil prices are not limited to the stock market only. A 10% increase in oil prices increases inflationary pressure by 30 basis points.
This increase can reduce the economic growth rate (GDP) by 15 basis points. The rising import bill will widen the country’s current account deficit (CAD) and weaken the rupee.
3. Will history repeat itself?
Market experts have reminded the initial phase of Russia-Ukraine war, when Nifty fell by almost 10% in the first half of 2022. Given the current circumstances, analysts at Bernstein estimate that if the tension continues, Nifty may go below the 24,500 level.
4. Which sectors will be most affected?
– Energy and Logistics: Rising oil costs will directly reduce profits.
– Travel and Trade: Disruption in international flights and trade routes will cause losses.
-Construction: Those companies which have large business in West Asia and North Africa (MENA) region, their projects and payments may stop.
The Middle East crisis is a major external risk for India. Any rise in oil prices could hamper the recovery of the Indian stock market.
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