When assessing the potential impact of the mentioned war scenario on the Indian stock market, several factors suggest that the impact is likely to be minimal:
- Diverse oil imports: India has diversified its sources of oil imports, including significant imports from Russia and possibly Iran, owing to good relations with Gulf countries. This diversity in oil suppliers helps mitigate the potential impact of rising oil prices resulting from the conflict.
- Limited trade ties: India's trade with both Israel ($10.8 Bn) and Iran ($2 Bn) is relatively modest, reducing the direct economic impact of the conflict on Indian markets. Consequently, disruptions to trade with these countries are anticipated to have minimal repercussions on the Indian economy.
- Limited global participation in the conflict: Many nations have expressed reluctance to actively engage in the conflict, stressing that it is not their war. Similar instances, such as when Israel attacked the Gaza Strip without direct involvement from other Muslim nations, suggest that broader participation in the conflict may be limited.
- Regional power dynamics: A conflict between Israel and Iran is likely to weaken both countries, potentially altering the regional balance of power. However, the likelihood of escalation to a full-scale war remains remote, as other factors such as international diplomatic efforts come into play.
- Symbolism of Iran's missile and drone attack: The drone attack by Iran was primarily symbolic, aimed at preserving its reputation. Considering the distance of over 1000 kilometers between Iran and Israel, the shooting down of the drone allowed Israel ample time to prepare in advance. Furthermore, Israel's acknowledgment suggests that the impact of this extensive attack, comprising over 300 drones and missiles, was minimal. Israel reported that 100% of drones and 99% of missiles were destroyed even before entering Israeli airspace, indicating a satisfactory response for Israel. Therefore, this incident reinforces the belief that a major war is unlikely to occur.
Overall, even in the event of escalated conflict, its impact on the Indian stock market is anticipated to be short-term and limited.
Regarding the course of action:
- Short-term investors: Exercise caution and consider refraining from investing, as heightened volatility may hinder the ability to profit from short-term market movements.
- Long-term investors: Look for opportunities amidst market fluctuations. Volatility can create chances to acquire quality assets at discounted prices, potentially yielding favorable returns in the long run.
Author: CA Himanshu Rastogi
