Indian shares tumble as Middle East war dents investor confidence, raises economic risks

Indian share benchmarks tumbled on Monday as the escalating Middle East conflict pushed crude prices higher and triggered investor flight to safe havens such as gold and the U.S. dollar.The Middle East supplies about half of India’s crude imports, and is the source of 40% of remittances and the destination for 17% of India’s exports, according to Jefferies and BofA Securities.A spike in oil prices and trade disruption drive up the cost of imported goods, weakens the rupee and stokes inflation, squeezing businesses and households alike.The Nifty 50 dropped 1.24% to a one-month low of 24,865.70 while the BSE Sensex shed 1.29% to 80,238.85, lowest in six months.The rupee depreciated against the dollar, and government bond yields rose after the U.S. and Israel struck Iran over the weekend, killing its supreme leader, which spurred retaliation from Tehran.Iran closed navigation via the Strait of Hormuz, likely disrupting nearly 20% of global oil flows and more than 40% of India’s crude imports. Brent crude prices surged 8.1% to $78.8 per barrel.The Indian economy has seen strong growth and low inflation over the past year, but a jump in oil prices and disruption in shipping routes could risk tipping the balance, analysts said.“As a large crude importer, India faces clear near-term headwinds, and a prolonged conflict could push Nifty below 24,500 levels,” said Venugopal Garre and Nikhil Arela, analysts at Bernstein.“The larger macro concern (due to rise in oil prices) is a renewed burst of inflation that delays rate cuts and crimps consumption as prices rise.”The government can initially shield households by absorbing part of the shock via “oil market companies’ balance sheets” and its own fiscal measures, but that “constrains budget headroom and risks crowding out domestic capex,” they said.Broad-based lossesFourteen of the 16 major sectors logged losses. The broader small-caps and mid-caps fell 1.8% and 1.6%, respectively.Shares of oil marketing companies, paint and tyre makers, aviation companies and chemical manufacturers slipped as crude oil prices rose.Index heavyweight and oil-to-telecom conglomerate Reliance Industries dropped 2.6%, dragging the benchmark indexes.Larsen and Toubro fell 5%. The company said that the Middle East is a strategically significant market, citing its long-standing presence across energy, infrastructure, renewables and technology sectors.Oil explorers, which benefit from higher crude prices, such as ONGC and Oil India rose about 0.9% each.India’s equity, currency and debt markets will be closed for a holiday on Tuesday.

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