The worst attack on Israeli soil in decades! A surprise attack by Iran-backed Hamas, a Palestinian militant group, killed over 1,000 in Israel last weekend and wounded many. This has again sparked geopolitical tensions.

As things take a dangerous and alarming turn, the consequences are far-reaching. It might impact the global financial markets, investors & traders, businesses, and the overall global economy.

How are the Indian and other stock markets reacting to this conflict?

The Israel-Hamas conflict has brought a lot of uncertainty to the markets and increased geopolitical risks for the market. 

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The Indian stock market indices opened cautiously today, influenced by mixed global signals.

The overall market capitalisation of companies on the BSE initially dropped from about Rs. 320 lakh crore to nearly Rs. 316 lakh crore, making investors lose around Rs. 4 lakh crore. However, it later recovered, with the BSE mcap rising to about Rs. 317 lakh crore. The BSE benchmark index Sensex was overall down -0.73% by the end of the day.

On the other hand, the Gift Nifty signalled a negative start for the Indian benchmark indices and was trading at around 19,658 as against Nifty futures’ previous close of 19,688.

Whereas, the US stock futures dropped 0.7% in early Monday trade.

And in the Middle East, major equity gauges saw declines on Sunday, with Israel’s TA-35 stock index experiencing a 7% drop, its largest loss in over three years.

What about the oil prices?

If this conflict spreads to oil-producing countries, it could make the price of crude oil more expensive, with negative inflationary effects for the West.

Crude oil prices jumped by over 4% in early Asian trade on Monday. 

Brent crude oil went up by almost 5% to reach $88.76 a barrel, and US WTI crude rose by 5.1% to $87.02 a barrel.

But in India, higher crude oil prices will weaken the profitability of three government-owned oil marketing companies: Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd. Their shares were down around 2-3% on Monday morning.

The rise in crude oil prices can also contribute to concerns about higher inflation and could lead to elevated interest rates for a longer time.

Meanwhile, some experts suggest that if the conflict spreads throughout the region, it could threaten oil supplies. 

For now, it is unlikely to impact major oil importers like India. However, if Iran, a major Hamas supporter, gets involved in the war, the situation will change. That can disrupt oil supplies and cause a sharp increase in crude oil prices, which might lead to a market downturn.

Why is Gold becoming a safe haven?

When stock markets and other investments seem uncertain, many people turn to “gold” for safety.

Gold prices have already started to go up as more people want it when things are uncertain amid the conflict, gaining as much as 1.2% today, according to a Bloomberg report.

Also, when oil prices rise, it can lead to an increase in inflation pressure and further weaken the Rupee, making gold an attractive investment option. So, the price of gold might go up domestically.

Today, on the Multi Commodity Exchange (MCX), the gold price for the December 2023 expiry contract opened higher at ₹57,000 per 10 gm levels and quickly reached an intraday high of ₹57,400 levels within a few minutes of the commodity market’s opening.

What are the experts saying?

The situation will cause a lot of uncertainty in the markets. Inflation and economic growth might slow down, and the focus now will be on the geopolitical risks.

This could mean that the markets become more volatile, and for now, short-term fixed income is becoming a safe haven again, while cyclical sectors will be in the spotlight.

However, this situation might not hurt the economy as much as it did in the previous oil crisis in 1973. This is because Saudi Arabia can increase its oil production to meet demand if necessary.

As for the impact on the stock market due to the Israel and Palestine conflict, it’s causing a lot of uncertainty and could lead to more market ups and downs.

Written By Shivani Singh

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