GEOPOLITICAL IMPACT: ISRAEL-HAMAS CONFLICT AND THE INDIAN STOCK MARKET

The ongoing Israel-Hamas conflict and other geopolitical tensions have immediate and potential long-term economic repercussions. India and Israel have cultivated strong trade and economic ties since they established diplomatic relations in 1992. Their bilateral trade has thrived, reaching a substantial $10.1 billion during the fiscal year 2022–23, solidifying India's position as Israel's second-largest trading partner in Asia.

In the fiscal year 2022-2023, India exported goods worth $7.89 billion to Israel, with imports valued at $2.13 billion. India's major exports to Israel include diesel, valued at $5.5 billion, and cut or polished diamonds, amounting to $1.2 billion. Meanwhile, India's imports from Israel consist of rough diamonds worth $519 million, parts of photovoltaic cells valued at $411 million, and potassium chloride at $105 million.

The trade relationship between India and Israel is robust, with significant economic activity in various sectors.

Impact on the Indian Stock Market

The Israel-Hamas conflict can have several implications on the Indian stock market:

1. Influence of Oil Prices: India is a major importer of oil. Any escalation in the conflict can lead to increased global oil prices, impacting various sectors and potentially increasing inflation. Businesses may pass on higher costs to consumers, affecting the overall economy.

2. Equity Market Sentiment: Geopolitical events, like the Israel-Hamas conflict, often trigger emotional responses in investors. Fear and uncertainty can lead to impulsive buying or selling decisions, causing rapid and sometimes irrational price movements. This can result in heightened volatility in equity markets.

3. Expert Views: Experts suggest that any equity market shortfall caused by such events may be temporary. They expect a relatively brief market correction and anticipate a rebound in the near future, indicating that it's a part of a larger trend.

4. Foreign Institutional Investors (FIIs): During times of uncertainty, including geopolitical conflicts, investors tend to become more risk-averse. FIIs may withdraw funds from the Indian market and opt for safer assets like bonds and gold to protect their capital.

It's important to understand that this shift in investment behavior doesn't necessarily reflect a lack of confidence in the Indian market's long-term potential.

Effects of the Conflict

The Israel-Hamas conflict can have several effects on the Indian economy and stock market:

1. Oil Prices: Escalation in the conflict can lead to higher global oil prices, impacting energy costs in India and potentially increasing inflation.

2. Stock Market Volatility: Geopolitical tensions often lead to increased market volatility, affecting retail investors and their portfolios.

3. Foreign Exchange Rates: The conflict can impact currency exchange rates, affecting investors involved in international trade or holding foreign investments.

4. Trade Disruptions: Global trade route disruptions can affect India's import and export activities, potentially leading to supply chain disruptions and impacting retail investors.

Sentiment and Investor Confidence: Geopolitical tensions can create uncertainty, negatively affecting investor sentiment and potentially affecting market liquidity and

overall economic growth.

It's important to stay informed during such events, and for personalized investment advice, consider consulting with financial advisors.