The surprise Israel-Palestine war has brought the Indian markets and financial sector on the tenterhooks as it may have wide-ranging ramifications and repercussions across geographies, economies and sectors.
Analysts see bond yields spiking and the stock market fall if the war drags on for long. Inflation could also harden as oil prices may shoot up. already
U.S. stock-index futures fell over 0.5% while Brent soared by 5%. Major equity gauges in the Middle East slid Sunday, led by a 6.4% drop on Israel’s benchmark TA-35 stock index, its biggest loss in more than three years. The Sensex was down over 300 points in Monday afternoon trade.
Fresh volatility
“There will be volatility in the bond and equity market temporarily. Bond yields will harden, cost of credit may go up for companies, crude price will rise if it spills over to the Middle East. Gold may become a safe haven, said Manoranjan Sharma, Chief Economist, Infomerics Ratings.
Bond yields will go down — as interest rates will rise further, oil prices will go further up. 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- does it end swiftly with a crippling blow to Hamas or it drags into a long-protracted war, e.g., Russia -Ukraine war,” Sharma said.
“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,” he said.
Vikas Jain, Senior Research Analyst at Reliance Securities, said, “Global financial markets already rattled by elevated interest rates now face a fresh dose of geopolitical uncertainty following Hamas’s surprise attack on Israel. Saturday’s strike and Israel’s subsequent declaration of war threaten to unnerve markets, while a jump in crude oil price adds to concern about elevated inflation.”
“Investors will have to brace for volatility as there could be a knee-jerk spike in crude oil prices amidst impact of Israel-Hamas conflict. Oil futures have spiked more than 5% following the outbreak of a conflict between Israel & Hamas, as a surging crude oil could impact domestic inflation and would see interest rates at an elevated level for a prolonged period. Keeping the mood bearish, the US bond yields have continued their upward bias as the 10-year treasury flared at 4.799%, while the yield on the 2-year Treasury has spiked to 5.085%, scaling a 16-year high.”
