Dear Readers,
“You may not be interested in war, but war is interested in you,” Leon Trotsky, the Russian revolutionary, once remarked.
This chilling truth encapsulates the far-reaching impact of conflict—not only upon walls and cities but also upon souls and generations.
We all have seen war movies, and have heard horror stories of partition. Unfortunately, wars are part of mankind’s history for various reasons. For some, it’s survival, some territorial ambition, and for some demonstration of power.
What began with the war in Ukraine two years back is not showing any signs of ending. Israel has been embroiled in its own war for almost a year now. This week, Iran fired 180 missiles at Israel, marking a new chapter of this prolonged fight. Striking on the eve of the Jewish New Year, Iran’s attack has triggered a counteroffensive from Israel. The next phase of action from either of the countries will have an impact on the global economy, including India.
A number of military analysts are busy scrutinising the attacks and counterattacks. They are counting soldiers, assessing fighter jets, and estimating the precision and range of advanced missiles. Yet, despite the technical analysis, one consensus remains: this war will be fought predominantly in the skies, with fewer ground confrontations.
But the ground will still be shaken and the economy will be disrupted as the stock market crash on Thursday showed. The Sensex tanked by 1800 points (2%), and the Nifty by 540 points (2.12%). The impact on oil and refinery stocks was the most. Shares of Reliance Industries Ltd, India’s largest company by market capitalisation, fell close to 4% and IOC, NTPC BPCL, and HPCL tanked significantly.
The reason is that Brent Crude prices rose by 6% within a day of the Iran attack.
Iran, as a key OPEC member and a major player in the global oil market, holds substantial sway over oil prices. The deepening Israel-Iran conflict is set to heighten geopolitical tensions, further unsettling economies worldwide, including India.
What does this turmoil mean for India? After Tehran’s attack, markets in Asia, including India, the US and Europe, declined. The Fearful investors are looking for exit strategies to keep their funds safe until the situation stabilises.
According to research by the Economic Times, 14 Indian-listed companies have direct exposure to Israel, and any continuation of the conflict could adversely affect these firms. Furthermore, as India relies heavily on the Middle East for its oil supply, there is a strong likelihood of rising oil prices domestically, which could exacerbate inflation—an unwelcome prospect with state elections on the horizon.
India caught in between
India has strong treaties with Middle Eastern countries. India imports oil from them and exports them tonnes of products. The bilateral trade with them is around $190 billion.
Apart from this, remittances from Gulf nations form a major part of India’s forex kitty as close to a million Indians work in those countries. Any upheaval in the region, whether from Iran or elsewhere, would have immediate repercussions on both trade and remittances.
While India enjoys strong relations with Israel, its ties with the Gulf countries must also be worked upon delicately, especially as sectors like oil, banking, and aviation could face significant disruptions.
Uncertainty is the only certain thing
The war situation has escalated and will raise the temperature of the world economy.
The majority of the countries are going through tough economic situations. China is looking to give a stimulus, Japan is raising rates. India is growing but the manufacturing is still not improving. The US has cut rates and is preparing for the November elections. There is enough uncertainty.
The RBI’s monetary policy meeting is scheduled next week and it will certainly take note of the Israel and Iran conflict. It will have to pay dedicated attention to this part as any spike in oil prices can directly flare up inflation.
This week RBI has appointed three new members to the monetary policy committee.
The level of disruptions is very high in the world and for the next three months at least, uncertainty will reign.
The uncertainties that the RBI governor often spoke about, and the caveat that research reports would cautiously slip into every ‘buy’ recommendation, have now transformed into a harsh reality.
War is no longer a distant possibility—it is a certainty. Moreover, the ongoing conflict in Ukraine is proving far less one-sided than initially portrayed. In fact, Ukraine sprung a surprise when it took over some of Russia’s land. Who would have thought that?
It’s been a year of great promise but the good news has been slow to come. In fact, good news literally dragged itself through the year. The talk of Fed rate cuts has been going around since January this year, and they came true only in September. In fact, much of its impact has been priced in.
It’s true with India too, it has been waiting for its own sectoral recovery. With the post-pandemic boom effect fizzling out last year, India has been battling rural slowdown, slow capex growth and job generation. For most of last year, many companies have been reporting decent profit growth even on the back of wafer-thin sales, all thanks to commodity impact.
Just as the green shoots were looking to emerge, as per management commentaries, the bad news hit.
Dark clouds
As the Jewish New Year, Rosh Hashanah, begins, countries will have to take precautionary measures to protect their Jewish populations. In the US, Jews make up roughly 4% of the population. On the other hand, India celebrated the 155th anniversary of Mahatma Gandhi. Hope the world embraces Gandhi’s lesson of non-violence. Things will be far better perhaps, more importantly economies. War is not just a financial loss and political win and gain, it leaves a social impact on generations. Where do we go from here? This is the most important question.
I am afraid, nobody has an answer. Certainly not the men who have declared war and who are fighting it.
As usual, I am also adding here the top five in-depth articles/copies that we published this week. Trust, you will find them meaningful.
- Disciplinary actions are not excessive; audit firms must improve processes and resources: NFRA Chief Ajay Bhushan Pandey
- NFRA at six: Top auditors urge stronger engagement and tech use amid rising debarments
- IPO fundraising almost doubles, QIPs triple in H1 of FY25: Prime Database
- Experts welcome GST anti-profiteering revamp but warn on consumer protection and ongoing litigations
- India’s economic dependence on China is growing despite Atmanirbhar Bharat
Happy Reading,
Amol Dethe
Editor
ETCFO
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(Editor’s note is a column written by Amol Dethe, Editor, ET CFO. Click here to read more of his articles exploring several buzzing topics)
