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As the United States, Israel, and Iran engulf the Middle East in unpredictable strikes, the impacts on India can be resounding. Today, we explain how.
And, Samosa Capital’s February Research Report is here. To learn more about one of the pillars of global pharma supply chains, Dr. Reddy’s Laboratories, download our most recent investment research report.
If you have any questions about India, fill out this form or reach out to Shreyas at [email protected]
Macro
Both Bank Indonesia and the RBI are intervening to support their currencies amid the Iran war. Both economies are net importers of oil, and a sustained climb threatens to raise import costs and increase inflationary pressures for them. For Indonesia, there is added pressure since credit agencies have given the country increased scrutiny.
While higher oil prices are a risk, even a sustained 10 percent rise in prices is only a 15 basis point dip in growth and 30 basis point rise in inflation. A complete outage of Iranian oil would cause a 20 percent rise in crude prices, but most global analysts do not expect that to happen.
Indian state refiners are debating turning to Russian oil sitting on its shores. Oil ministry officials have indicated that India has excess reserves that will last another 2 weeks; the government will have to seek some wiggle room from the US for either Venezuelan or Russian crude.
10-year yields rose to a 1-year high of 6.78 percent due to greater risk premia. Renewed oil shocks and capital flight could cause further rises.
Equities
Last Thursday and Friday saw a $1 billion (₹91 billion) foreign exodus from stocks. The next level that technical traders are looking at for the Nifty is 25,000 — the psychological barrier being breached could cause more panic to set in.
Even with conflict in Iran, industrial stocks rallied 6 percent last month. Key gainers included GE Power India and KRN Heat Exchanger after deals were signed with the EU and the US. Further color on Canadian trade deals could cause further growth in the ‘anti-AI’ sector.
Alts
Eyes are on CSB Bank which could merge with state-lender IDBI if Fairfax purchases the latter. Many lenders have cleaned up their balance sheets making the merger likely since Fairfax has a majority stake in CSB Bank.
Policy
The Meteorological Department is predicting higher temperatures and energy demand in the coming months. Another risk is damage to wheat yields which would undermine other government entitlement programs used to distribute grains to 800 million people per month.
Modi and Carney announced new research and exchange programs at Indian and Canadian universities. 13 different partnerships were announced with the majority focused on STEM studies.
Samosa Capital’s February Investment Research report is here!
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This month, we discuss Dr. Reddy's Laboratories (NYSE: RDY), a massive player in the global pharmaceutical supply chain, and a pillar of India’s drug production industry.
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President Trump and members of his cabinet execute strikes on Iran
How Iran Could Disrupt India’s Future
Risks to India from past Middle East conflicts like when Israel-Palestine broke out in 2023 or Iran last summer have generally been relegated to just oil markets. This time around activity is much more volatile and things from trade flow to remittances are all on the table.
The UAE — now actively fending off drone strikes — is India’s 2nd largest electronics export destination after the US. It also is a gateway for exports across West Africa, the Middle East, and Central Asia. The Gulf also features 9 million Indian nationals who send remittances which families rely on for consumption and saving. If this conflict prolongs itself both export revenue and income inflow will drop. Reports of missiles and drones affecting port operations in Dubai has already led to surging freight and insurance costs.
The other weak link is the Strait of Hormuz since roughly half of India’s oil imports transit the waterway. A prolonged disruption would widen the current account deficit and raise inflationary pressures just as domestic demand shows signs of recovery. The rupee (among Asia’s weakest performers) has depreciated sharply over the past two years and slid another 5 percent on news. Gold prices, which have surged since the Ukraine war, pose a fiscal risk because of sovereign gold bonds issued a decade ago. The government effectively holds an unhedged short position linked to bullion prices, leaving the treasury exposed to 124 tons of liabilities worth $22 billion (₹2 trillion) as bonds mature through 2032. At the same time, physical gold imports from the UAE may be constrained by shipping disruptions, potentially widening trade imbalances even as domestic demand for safe-haven assets rises.
Food security represents another underappreciated channel. Qatar’s LNG is critical to India’s agricultural supply chain. A sustained halt in LNG flows would force policymakers to either expand a $19 billion (₹1.7 trillion) fertilizer subsidy or risk shortages that could anger rural voters ahead of key state elections.
Geopolitically, India’s room for maneuver is limited. Refiners limited their purchases of Russian crude to appease Trump meaning trade leverage is completely against India. Modi’s visit to Israel also complicates its support in the conflict since it publicly looks completely for Israel’s offensive.
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Written by Yash Tibrewal. Edited by Shreyas Sinha.
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Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.