Making sense of the conflicts and the Markets

There is nothing right about war, only what is left.

It is the season to feel a bit lost for most of us in West Bengal and for many others all over the world. Our favourite daughter had come home with her children and she left us to return to her own house and her husband in the hills. A bit of a respite from these lows from the markets could have put a cheery note amongst all the sorrow but it is not to be. The markets show a lack of energy and the global cues are nothing but dreary. So what is happening?

The news on the war keeps on getting sadder and sadder!!!! And even though the Ukraine-Russia conflict is still raging it has stopped figuring at the top of our collective consciousness. Starting as it did in February of last year, it has now receded to the 5th or 6th page of the morning newspapers and definitely in the last ten minutes of a regular news programme. So much has it receded that even the US has stopped committing fresh aid (read more weapons, sold at more than market prices at low interest rate). Israel-Hamas-Palestine is a far more contemporary and relevant and related event that we have shifted to. And of course, the stock market has also shifted it’s attention. From Mr. Putin and Mr. Zelensky to Mr. Netanyahu and Hamas. Even the “WhatsApp university” has dumped these earlier mentioned gentlemen and focussed on educating us on the new flavour of the season.

So, is it really that bad, This Israel Palestine conflict? For us in India, for the capital markets?? Yes and no!!! War anywhere is bad, particularly so if we are the mango people, and I suppose most of us are. The obvious fallout is the cost to life and living for people there and of course the horrible pictures that we get to see are so heart breaking. But let’s put in a bit of perspective to this “war” and its affect on us. India does a little bit of trade with Israel and we have a surplus with them. The other countries involved (apart from the US of course and Russia and China) are the usual middle east superstar actors – Egypt, Iran, Saudi Arabia and the minor cast of Yemen, Syria etc. Apart from Saudi Arabi which is a big oil supplier to India, the rest are of tourist interest only. Except Iran – which has the capacity to be the big global supplier but the US has sanctions in place for the last many years which has stopped them from participating in the oil exports business.  So it has very little impact apart from the tea purchase factor. The world trade happens substantially through the Suez Canal but if any threat were to happen to it, the rest of the world will ensure that the threat is neutralised. The war in the middle east has more eyeball factor rather than real economic and financial implications for us here.

While the fall out yet on us in India is limited so far, there is a disproportional concern (I think) that the equity indices are showing. I am quite sure that the indices were tired even before the start of this Israel Hamas conflict and it showed in the sluggishness displayed over the last 6-8 months. And the war was a signal for the bulls to go on a vacation. Can’t blame them, they had worked hard enough. But really what has happened. Even as we speak the Nifty 50 is below the 19,300 mark and the narrower BSE SENSEX is below the 65,000 mark. If we actually stop and think, these are not really bad numbers. It is just that the “dil mangey more” always. Even if these indices were to come below by 5%-8%, it would be healthy and definitely not alarming for us investors. The speculators have a lot to worry but I don’t worry about them at all.

The markets are bored and tired and thereby the sluggishness. It was tapering off anyways but needed a reason for doing so with any conviction. And the Israel Hamas conflict has provided that.

But there is a far bigger gorilla lurking in the shadows that we need to be careful of. More on that later. Let’s not worry too much in this festive season.

Stay with the blessings of the Divine.

Prasunjit Mukherjee