On April 1, 2024, tensions between Iran and Israel escalated when Israel carried out an airstrike on Iran’s consulate building in Syria. This incident led to the tragic loss of eight officers and a senior member of Iran’s Islamic Revolutionary Guards. The airstrike was Israel’s retaliation to the ongoing conflict in Gaza, which had started almost six months prior.
In response to the consulate attack, Iran made a commitment to retaliate. On April 13, 2024, Iran took unprecedented action by launching drone and missile attacks on Israel. This marked the first direct assault on Israel by Iran in history, under the banner of “Operation True Promise,” targeting specific Israeli locations.
The escalating conflict also had impact on the financial markets. Indian stock market opened lower on Monday as investors offloaded riskier assets in response to the conflict. Additionally, oil prices experienced a decline, reflecting a decrease in risk premiums.
Here are some stocks that will remain in focus due to escalating tensions between Israel and Iran if this conflict rises in the near term.
Oil marketing company stocks
Market analysts are concerned that escalating tensions between two nations could drive up crude oil prices, subsequently increasing inflation. Such a scenario could introduce volatility into stock markets, including India’s.
Moreover, the recent conflict and the seizure of a cargo ship by Iran might intensify fluctuations in global equity markets, impacting India as well. The international community will closely monitor responses from Israel and the G7.
If the conflict continues to escalate, it could further elevate crude oil prices, exacerbating inflationary pressures. This would likely reduce the likelihood of interest rate cuts, affecting stock valuations, particularly for Indian equities, which are currently not at discounted levels.
This situation could also squeeze the profit margins of major Oil Market Companies like Hindustan Petroleum Corporation, Indian Oil Corporation, and Bharat Petroleum Corporation. Already, the profit margins of HPCL and BPCL have been eroded significantly due to the surge in global crude oil prices. Continued conflict and high oil prices could further dent the profitability of these companies.
Paint Stocks
Around 40% of the raw materials used by paint companies are derived from crude oil. Given that crude oil is a primary ingredient for paints, any uptick in its price can escalate the costs of these crucial raw materials. Consequently, this could drive up the prices of paint and coating products, potentially impacting the profitability of paint companies.
The ongoing conflict could further exacerbate crude oil prices, contributing to rising inflation. Major paint companies that could be affected include Asian Paints Ltd, Berger Paints India Ltd, Indigo Paints Ltd, and Plastic Products companies.
Tyres stocks
The tyre industry heavily relies on crude oil, which accounts for about 60% of tyre production costs. As a result, tyre companies like MRF Ltd, Balkrishna Industries Ltd, JK Tyre & Industries Ltd, CEAT Ltd, and Apollo Tyres Ltd can face significant challenges when oil prices rise.
Increased oil prices drive up manufacturing costs due to the dependence on crude oil derivatives, essential for producing synthetic rubber used in tyres. This rise in production costs can squeeze their profit margins and impact their overall financial performance.
Adani Ports & Special Economic Zone Ltd
In 2023, Adani Ports acquired the Haifa port in North Israel for $1.2 billion. This port stands as Israel’s second-largest for shipping containers and is the largest for accommodating tourist cruise ships.
Fortunately, the port remains unaffected by the ongoing conflict in South Israel. However, if the conflict were to escalate, critical infrastructure like Haifa port could become vulnerable targets. Despite its significance, Haifa contributes only 3% to APSEZ’s total cargo volume.
Sun Pharmaceuticals Industries Ltd
The recent Israel-Hamas conflict could potentially impact Sun Pharmaceuticals Industries Ltd, primarily through its Israeli subsidiary, Taro Pharmaceutical Industries Ltd. However, the company’s overall business is unlikely to be significantly affected due to its limited involvement in the Israeli market.
Taro Pharmaceuticals, headquartered in Israel, accounts for only 8% of Sun Pharma’s total revenue, which is less than 1% of its overall sales. The company’s Israeli operations mainly focus on manufacturing active pharmaceutical ingredients (APIs) for its global business.
Written by Omkar Chitnis
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