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Global markets, including India, on Monday came under pressure in a global risk-off move following the eruption of a growing conflict between Israel and the Palestinian Islamist group Hamas. The BSE Sensex fell by 0.73 per cent, or 483 points, to 65,512.39 and the NSE Nifty index fell 141 points to 19,512.35 in the sell-off.
The Middle East conflict pushed investors toward safe-haven assets as this negative trigger is the latest in the list including the macro-economic uncertainties in Europe and China, hawkish central banks and already rising oil prices. While foreign investors pulled out close to Rs 1,000 crore from the cash market on Monday, domestic institutions led by mutual funds and insurance companies prevented a bigger fall by purchasing stocks worth Rs 2,661 crore.
“An unforeseen escalation in the Middle East has rekindled pessimism in global markets. Moreover, the rapid surge in oil prices presents a significant threat to the global market, which is already dealing with elevated inflation and interest rates. In the mid- and small-cap segments, we observe consolidation as investors reshuffle their portfolios due to premium valuations in this space,” said Vinod Nair, Head of Research at Geojit Financial Services.
The rupee settled flat at 83.27 against the US dollar amid a weak trend in domestic equities and surging crude oil prices in the international markets.
“The issue is that if the war persists for long, which is say, even a fortnight onwards, then the oil dynamics will change. Brent had crossed the $ 90 mark but then retreated. Now we can use the 90 number to be the threshold beyond which there is trouble for the world economy. India can get affected if the price remains high due to further supply disruptions,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Iran joining the fray can affect the sea routes and push up transport and insurance costs. Higher crude will distort the country’s balance of trade and CAD thus putting pressure on the rupee.
“One of our major trade partners on the exports side is Israel which buys around $ 5.5-6 billion of refined petro products from us. Therefore, the rupee depreciation is a distinct possibility which will require the RBI action.
