In an unexpected turn of events, conflict between Israel and Palestine escalated to unforeseen levels. On October 7 when Hamas, a Palestinian militant group that controls the densely populated Gaza Strip along Israel’s border, launched an unprecedented attack on Israel from Gaza strip. This attack has resulted in the tragic death of more than 8000 people as per the Palestinian officials. This has triggered a wave of fear in the investor community. So, what does the institute for the best stock market courses in Delhi has to say?
Why the conflict?
The conflict between Israel and Hamas began in the late 1980s, when Hamas was founded as an offshoot of the Muslim Brotherhood. Hamas is a Palestinian Islamist political organization that has been in power in the Gaza Strip since 2007. The group’s founding charter calls for the destruction of Israel.
The conflict has been marked by numerous rounds of violence, including three major wars in 2008-09, 2012, and 2014. The most recent conflict began on October 7, 2023, when Hamas militants breached the Gaza-Israel barrier and launched a coordinated surprise offensive against Israel. The conflict has been exceptionally brutal, with a high death toll and many displaced people.
The current situation is ongoing, with Israeli military forces carrying out airstrikes in the Gaza Strip and imposing a total blockade. Hamas has taken over northern Gaza, including Gaza City, and large parts of northern and southern Israel. Over 1,400 Israelis, mostly civilians, have been killed so far. To know more about the background of the conflict, refer to this video: https://www.youtube.com/watch?v=8f6XZedkO-Y
Why it happened now?
The Arab world is coming to terms with Israel that is undergoing a shift in its relationship with Israel. Saudi Arabia is talking about normalizing relations with Israel. This normalization is seen as a significant change in the region, as many Arab countries historically had no formal ties with Israel due to the Israeli-Palestinian conflict.
As part of that potential deal, the United States is pressing Israel to make concessions to the Palestinian Authority—Hamas’s enemy. The United States is mentioned as playing a role in facilitating these normalization efforts.
Hamas, a Palestinian militant group that controls the Gaza Strip, and Iran, a country in the Middle East, have a common interest in disrupting the normalization process. While it’s suggested that Hamas may not take direct orders from Iran, they seem to coordinate their actions. Both Hamas and Iran are portrayed as having an interest in preventing the progress of Arab-Israeli normalization.
So, this was an opportunity for Hamas and its Iranian backers to disrupt the whole process, which political folks think in retrospect was deeply threatening to both. The idea was to embarrass those Arab leaders who have made peace with Israel, or who might do so, and to demonstrate that Hamas and Iran have the military capability to inflict defeats on Israel.
Once the Palestinian issue returns to front and centre and Arabs around the world are watching American weapons in Israeli hands killing large numbers of Palestinians, that would ignite a very strong reaction. If there is a situation where American-supplied weapons are used by Israel in a way that leads to significant casualties among Palestinians, it could trigger a strong reaction in the Arab world. Arab populations in the Middle East would be watching closely and may be outraged by such events.
Arab leaders, including figures like Saudi Arabia’s Crown Prince Mohammed bin Salman, would be hesitant to openly oppose such strong public sentiment. These leaders may be reluctant to stand up to the anger and opposition that could arise if they don’t address the situation to the satisfaction of their populations. This will make it difficult for them to maintain their positions without addressing the concerns and sentiments of their populations. These could be the possible reasons of the conflict.
Israeli Prime Minister Benjamin Netanyahu stated that the next stage of war has just begun against Hamas through a ground expedition and expressed confidence in Israel’s victory. President Joe Biden assured “rock solid” support from the United States for Israel.
How would it affect stock markets and stocks- positive or negative?
Let’s discuss the negative aspects of this ongoing conflict, from the viewpoint of provider of Top 5 Online Stock Market Courses in India.
- Sun Pharma are likely to be weighed down as its subsidiary Taro Pharmaceuticals is an Israel-based company. Taro Pharma has stated that terrorist acts could result in disruptions to its business. Other Pharma majors like Dr Reddy’s, Lupin, and Torrent Pharma also have an exposure to Israel on account of exports.
- Adani Ports, operates the Haifa port in Israel. The Gautam Adani-led group firm said it is closely monitoring the action on ground and is prepared with a business continuity plan. The overall contribution of Haifa in APSEZ’s numbers is relatively small at 3 percent of the total cargo volume.
- Tata Consultancy Services (TCS) has several big-ticket projects, including government ones, in Israel. The IT major has over 1,000 employees in the country, and is closely monitoring the safety of its employees currently stranded in Israel, it said.
- Diamonds are one of Israel’s biggest exports. The nation’s industry is mainly focussed on the cutting and polishing of this precious metal, rather than mining. Asian stocks including Indian Miner, NMDC Ltd., Jewellery makers Kalyan Jewellers India Ltd and Titan Co. could be negatively impacted.
- Railway stocks like IRCON, Jupiter Wagons, RVNL could adversely affected. This conflict would affect India’s plan of building an India-Middle East-Europe Economic Corridor which was announced at the G20 Summit. The corridor was seen as positive for railway-related companies as well as the shipbuilding industry. Hence these companies could get impacted in the short run.
Now, let’s discuss how this conflict would indirectly positively affect stock markets and stocks, despite the sad reality of human life crisis.
- Archean Chemicals stock may get a boost as the ongoing Israel-Palestine conflict is expected to drive up bromine prices. This would be due to the anticipated slowdown in bromine production in the Dead Sea region bordering Israel and Jordan. The company is India’s largest exporter of bromine in Fiscal 2021. Hence this company might get benefited in the short run.
How would Crude Oil, and US Bond Yields be affected?
Oil futures have spiked above $90 per barrel following the outbreak of a conflict between Israel & Hamas and Israel starting a ground operation in the strip. However, till date the prices have come down since Friday due to the upcoming US Federal Reserve’s monetary policy meeting later this week. A surging crude oil could impact domestic inflation and would see interest rates at an elevated level for a prolonged period.
Fig. WTI Crude Oil Price Chart
Keeping the mood bearish, the US bond yields have continued their upward bias as the 10-year treasury flared at 4.647 per cent, while the yield on the 2-year Treasury has spiked to 4.984 per cent, scaling a 16-year high.
While Israel and Palestine are not oil producers, but Iran is. Deven Choksey, MD at DR Choksey Finserv noted that while US sanction continues on Iranian oil, Iran’s supply has increased in recent years.
He noted that Arab nations such as Saudi Arabia and Egypt do not support the Hamas movement. He noted that OPEC nations (Organization of the Petroleum Exporting Countries) would be mindful of not increasing the oil price beyond 10-12%, as they have understanding in practice with USA to ensure that oil prices are not increased beyond certain levels.
However, the crisis is unlikely to pose any major immediate threat to the oil supply unless it further spreads to other countries in the region which could develop into a more devastating proxy war, embroiling the US and Iran. Choksey said oil prices may not stay at elevated levels, beyond short-term moves.
What would be the impact on Gold?
Gold is often considered a safe-haven asset in times of geopolitical turmoil, economic uncertainty, or financial market instability. The Israel-Hamas war is expected to give a further boost to gold prices. Besides, gold prices react to interest rates. In the case of low-interest rates, the opportunity cost of holding gold is also lower, making gold more attractive. When interest rates go higher, they make other interest-bearing investments such as bonds more appealing. In simple words, gold is an attractive safe-haven asset class during times of economic uncertainty, but it loses its appeal when interest rates rise as the yellow metal yields no interest.
In recent times, gold prices have experienced a significant correction over the past two quarters, driven by the strength of the US dollar and surging US bond yields, reflecting expectations of an extended period of restrictive monetary policy. As of now, gold prices appear to be an appealing option for value-conscious investors.
Market analysts are suggesting to buy gold on dips as they see positive momentum in the yellow metal to continue in the coming months amid the geopolitical worries, macroeconomic factors and upcoming festive season in the country.
However, they suggest that investors should trim their expectations as gold is unlikely to redo Russia-Ukraine war performance.
How has this conflict impacted the Indian markets?
During the Mumbai terror attacks in November 2008, the Nifty 50 recovered 50% in six months, as other factors took centre-stage. The markets become volatile in the short-term when a war breaks out, and it is part of the cycle. We have seen during the surgical strikes, Kargil war, but then it is the fundamentals and power of compounding that come back into play. Economically we don’t see much impact; this is only short-term sentiment.
To put it in plain words, wars lay short term impact on the market. In the long term, markets continue to move upwards, and people profit from the power of compounding. Unfortunately, the long-term impact of wars is on human lives and their families. We pray that this life crisis ends as soon as possible, despite whoever is it at fault here.
To know how you could handle these short-term fluctuations, you can do a google search for stock market institute near me.