The ongoing war between Israel and Hamas that has led to over 3,500 deaths is on top of market participants’ minds across the globe. Analysts on Dalal Street believe the war may keep the domestic equity market volatile in the medium term and may also impact various sectors and companies if the situation isn’t brought under control.
Sunny Agrawal, Head of Fundamental Research Desk, SBI Securities, in an interaction with Business Today says investors should keep an eye on sectors like railways, ports, oil and gas, defence, travel and tourism, gems and jewellery and information technology.
Sharing his view on the railways and ports, Agrawal says the Haifa Port of Israel is one of the key links in the recently signed MoU to establish the ‘India-Middle East-Europe Economic Corridor’ (IMEEC).
“However, due to the ongoing conflict, the planned implementation of the economic corridor might face delays. Several domestic railway players like RITES, RVNL etc were supposed to bag a large chunk of orders for the creation of the mammoth rail infrastructure. Significant delay in the implementation of the project could potentially hamper the earnings growth prospects for railway players in the medium term,” he said.
The Haifa Port is owned and operated by Adani Ports and contributes 3 per cent of the total cargo volumes of the company. Haifa is located on the northern side of Israel, while the ongoing conflict is restricted to the southern part. The company has clarified that it is monitoring the situation closely. Since the port’s contribution to the total volume is minuscule, the impact on earnings growth will also be negligible.
India also imports around 80 per cent of its crude oil requirement. Any sharp spike in crude oil prices will worsen the inflation outlook and put pressure on India’s import bill. The price of crude oil has soared 6.40 per cent to over $90 per barrel on October 16, against $84.58 on October 6.
“Upstream oil companies like ONGC and Oil India are the key beneficiaries of the buoyant crude oil prices. On the other hand, crude oil prices for oil marketing companies (OMCs) like HPCL, BPCL and IOC experience an inverse correlation to profitability and stock prices. Historically, any significant spurt in crude oil prices has led to a correction in stock prices of OMCs,” Agrawal said, adding that high crude oil prices also stoke inflationary pressure on sectors like cement, paints, airlines and chemicals.
Commenting on the defence sector, market analysts said due to the ongoing Russia-Ukraine and Hamas-Israel conflicts, defence budgets will receive a shot in the arm across the globe.
“Domestic defence companies like HAL, BEL, Mazagon Dock, Cochin Shipyard, L&T, Bharat Forge are likely to be the key beneficiaries in the long term,” he said. The US-based defence major Lockheed Martin’s stock price has soared over 10 per cent since the beginning of the war between Israel and Hamas.
The travel and tourism sector may also get a hit. “In case the situation is not normalised any time soon, the travel and tourism industry may witness some impact in short to medium terms. International airline business is likely to be impacted due to travel-related restrictions and suspension of services,” he added.
India’s trade with Israel, the primary exports include diamonds (valued at approximately $1.4 billion), refined petroleum (about $582 million) and rice ($54.0 million). India accounts for 4.6 per cent of the total trade with Israel. “Gems and jewellery industry may witness some disruption in terms of diamond exports to Israel,” Agrawal said.
The Indian IT industry has a limited presence in Israel, largely focused on innovation partnerships and R&D. Companies like TCS set up base in Israel in 2005 and currently have 1,100 employees based out of Jerusalem. Recently, TCS and Jaguar Land Rover (JLR) introduced an Open Innovation Program in the region. Amongst other prominent IT companies, HCLTech has two offices in Israel. Tech Mahindra also recently tied up with Israel-based defence electronics firm ELTA Systems. Wipro has 80 employees (all locals) working at its Israel unit. “Overall, the safety of employees is of paramount interest for all IT majors, while from a business perspective, the impact is likely to be negligible,” the market watcher said.
On the other hand, many domestic pharmaceutical companies have tie-ups with Israeli companies for the development of drugs. Sun Pharma owns a majority stake in Israel’s Taro Pharma and the impact as of now seems to be negligible.
A significant portion of the world’s bromine and bromine compounds are sourced from the Dead Sea region which lies between Israel and West Bank. “If the fighting escalates further and spreads to the Eastern border of Israel (where the Dead Sea is located), bromine supplies could potentially be impacted, leading to higher prices. This could benefit Archean Chemical Industries, which is a major producer of bromine in India,” Agrawal said.
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