‘Difficult days ahead’: What an Iran-Israel war means for stocks, gold, oil and you

Amid fears of the ongoing war between Israel and Iran moving down the escalation ladder, market watchers see uncertain and difficult days ahead for global stock markets and economies.

The latest attack by Iran ups tensions in a region that produces about a third of the world’s crude.  Experts believe any escalation between the two nations may lead to a rise in crude oil prices, which in turn will push inflation upwards. 

This may lead to volatility in stock markets, including India. On a year-to-date basis, the price of Brent has increased by more than 19% to $90.45 per barrel on April 12, 2024 against $75.89 per barrel on January 2, 2024. 

Iran on Sunday launched drones and missiles in a revenge mission that pushed West Asia closer to a regional war. According to reports, Iranian commandos on Saturday also seized an Israeli-affiliated container ship.

Sharing his views on the likely impact of the Iran-Israel war on the equity markets and the Indian economy, Shrey Jain, Founder and CEO, SAS Online-India’s Deep Discount Broker said, “The escalation of conflict and seizure of cargo ship by Iran may increase volatility in the global equity markets including India. The world will watch the response by Israel and the G7. Further escalation in the conflict may lead to a hike in crude oil prices and in turn, push inflation upwards. This reduces the chances of a rate cut and in turn valuations of stocks, including Indian equities, especially at a time when they are not trading cheap.” 

The benchmark equity index BSE Sensex recently scaled an all-time high 75,124.28 on April 4, 2024. 

Jain further added that the domestic exporters may see an increase in costs be it tariffs or time to delivery. This should hamper the margins and the market participants should discount the same quickly by selling such counters. 

Stocks of oil marketing companies too should be watched out for. “Sustained high crude oil prices, lower margins and inability to pass on higher prices ahead of elections should act against OMCs. Investors may prefer domestic power sector stocks and pharmaceutical stocks as defensive plays in a volatile phase of the market. Select large-cap capital goods, defence and infrastructure stocks can be bought at lower levels. Traders should strictly follow stop loss in their open positions,” Jain said.

Manoranjan Sharma, Chief Economist, Infomerics Ratings added that there is a possibility of horizontal escalation and retaliatory, even deterrent strikes by Israel. Going forward, the stand of the government of the USA is likely to be a major factor in this rapidly evolving situation. “We may see uncertain times, difficult days ahead,” said Sharma.

Meanwhile, gold prices jumped by more than Rs 1,000 to Rs 72,931 per 10 gram on Friday, largely driven by escalating geopolitical tensions. This geopolitical uncertainty has fuelled a rush into safe-haven assets, propelling gold prices up by 1.60%. 

Jateen Trivedi, VP Research Analyst-Commodity and Currency, LKP Securities said, “Despite this sharp increase, the overall trend in gold remains bullish, with strong support seen at Rs 70,000.”

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