Just ahead of Lok Sabha elections 2024, geopolitical concerns have taken centerstage at Dalal Street, with the flaring up of tensions between Iran and Israel raising concerns over oil supplies from the Middle East. Analysts said investors should not panic, for now. What stand the US takes on the matter --- whether it intends to support Israeli retaliation, would be closely watched, they said.
For now, the US President Joe Biden has reportedly informed the Israeli Prime Minister Netanyahu while his country was commitment to defend Israel is 'ironclad', the US would not participate in offensive operations against Iran.
Nomura India said unless the geopolitical tensions flare up significantly leading to sustained high oil prices, it does not think this is the start of a sustained downturn in stocks. It said stocks in the past have tended to look through regional geopolitical tensions beyond initial knee-jerk moves. For example, oil peaked within two weeks of the start of Russia-Ukraine conflict (February 2022), and Hamas’s attack on Israel (October 2023), before stabilising.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services note said negatives were in the price since a retaliation was expected from Iran following the Israeli raids in Syria and that the higher US inflation was discounted by the market on Friday.
Besides, crude oil market stayed calmed for now. Brent futures for June delivery last traded at $90.25 a barrel level down 0.22 per cent in Monday’s trade.
"Signals from the crude market indicate that the Iran-Israel conflict is unlikely to escalate. President Biden has clearly indicated that he doesn’t support Israeli retaliation. So, the situation may calm down. However, investors have to be guarded since the element of uncertainty is high during a tense situation like this," Vijayakumar said.
Uncertainty stays
JM Financial said Iran has indicated that they ‘deem this matter to be concluded’. But attacks like these would add volatility to equity markets as crude oil prices are expected to rise to three digits in near term.
Manoranjan Sharma, Chief Economist- Infomerics Ratings said there is a possibility, nay likelihood, of horizontal escalation and retaliatory and even deterrent strikes by Israel.
"Going forward, the stand of the government of the USA is likely to be a major factor in this rapidly evolving situation. Uncertain times, difficult days ahead," Sharma said.