How Israel-Iran Tensions Could Hit Your Portfolio in India

How the Israel-Iran Conflict Can Impact the Indian Stock Market

While investing in stock market, people are more concern about global conflicts these days. If anything happens in one country that can affect others in several way. This blog is covering topic about ongoing conflict between Israel and Iran, impact on Indian stock market though India is far away from these two countries.

Do Global Events Really Matter to India

The answer is yes; while importing oil, exporting goods and services, and depending on foreign investment, India is deeply linked to the global economy. If anything happens like elections/political tensions, wars, natural disasters, they can cause changes in global prices and investor behaviour. These changes impact India and across the world too.

While talking about impact, the biggest worry for India is Crude Oil Prices.

Iran is the country, is a major oil producer, and any tension in the Middle East can lead to oil supply disruption. If oil supply falls or there’s a threat of war, oil prices go up.

Following the recent price trend, Brent Crude rose 7% to over $70 per barrel. India is one of the countries who imports 89% of its oil, while a small oil price changes can lead to higher fuel costs, resulting higher input costs for companies like airlines, logistics, paints, and chemicals which again will effect on their profit, as a result stock price will fall in certain sectors.

Impact on Indian Stock Market

When the concern is about global conflicts, investors often become nervous.

This leads to selling pressure in the stock market since foreign investors (FIIs) become nervous and pull money out of Indian market and move to a other assets which are comparatively safe like gold or bonds.

The Indian rupee may fall, making imports more expensive.

Stock market volatility (VIX) increases— as a result we may see sharp ups and downs in major indices (Sensex and Nifty) as well as individual stock prices.

Sectors That could perform well

Well, during this global tension there are few sectors that could perform well and investors often take advantage of it.

Defence Sectors: In such situations, governments often spend more on defence which means more order, more profit and stock price will go up.

Gold and Bonds: When global tension goes up, mostly investors prefer to shift their investment into gold or bonds. As a result, demand increases and those who are holding the assets can benefit.

Oil & gas companies: Those involved in oil production may benefit from rising crude prices.

What To Watch That May Be Affected

There are different sectors likely to be negatively impacted:

Sectors such airlines, transport, and paints are oil-dependent, are likely to be impacted due to higher fuel costs, rising transport costs, hurt margins.

Auto industry due to rising raw material and fuel costs.

Banking & Finance: Higher oil price à higher inflation à Higher interest rates à Lower growth.

Stock to watch:

Defence Sector:

Oil & Gas: Reliance Industries, BPCL, IOCL

Gold & Bonds: Muthoot Finance, Titan

Airline: IndiGo (InterGlobe Aviation)

Auto Industries: Tata Motors, Hero MotoCorp, Bajaj Auto, Maruti Suzuki

Paint & Chemical: Asian Paints, Berger Paints

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For investors while the goal is long term, it is always important not to panic.

Short term volatility is very common in stock market following global events, but long-term vision of India economy should remains strong.

It’s always recommended to diversify your portfolio, means put your money into different sector or stock.

Always stick to quality stocks which are fundamentally strong and even global events can cause short term volatility but in long term it remains always strong.

Never withdraw your investment in panic mainly if your investment goal is long term, and you are holding good quality stocks unless fundamentals change.

Not to time the market for long term investment but it is always best practice to keep an eye on crude oil prices and global news, especially related to the Middle East.

Final Thoughts

While the Israel-Iran conflict is far from India, but the biggest worry is oil price which can hit India directly impacting inflation, interest rates, growth and weaken the rupee. Certain sectors may see pressure while certain may rise, while FIIs can turn more cautious. As an investor stay tuned on oil price, rupee and RBI policy.

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