Moneycontrol Pro Weekender | Will this war follow the old playbook?

The markets are holding their nerve.

Dear Reader, 

Markets have seen Middle East wars before — but rarely one that simultaneously closes a major shipping chokepoint, sucks in the Gulf States, and decapitates a government.

And yet, so far, the markets are holding their nerve. The MSCI India equity index, for instance, was down a mere 1.86% this month (as on March 5) in local currency terms, and India is a big oil and gas importer. If you measure the index in dollar terms, the fall is a bit more, at 2.5%, due to the dollar strengthening. Perhaps investors have taken heart from our comprehensive historical analysis of Middle Eastern conflicts, starting with the six-day war in 1967. The conclusion: ‘over the last six decades, the Sensex has delivered positive returns 12 months after the start of almost every Middle East war.’ That’s a powerful incentive to keep calm and carry on. In fact, as my colleague Anubhav Sahu writes, ‘the peak of conflict provides an opportunity to increase exposure to equities and investors who missed out the rebound in markets after the US-India trade deal can get an opportunity to chip in.’

But history also carries some warnings. Aparna Iyer dug deep into history to point out that ‘Middle East conflicts are more adverse for the Indian exchange rate than in conflicts where India was directly involved.’ Foreign investors are likely to keep that in mind. And Shishir Asthana put it most sharply when he wrote: ‘Markets will stabilise eventually. They always do. But the speed of that stabilisation will depend entirely on whether the guns fall silent before the oil stops flowing.’ The big question is: how long will the war continue?

That is the fault line running through every asset class now. An FT story, free to read for Moneycontrol Pro subscribers, has the alarming headline: Why oil at $200 a barrel is no longer unthinkable, because if supply disruptions persist, holders of stockpiled reserves can’t be relied on to fully cushion the impact. Gas prices have already flared up, with our columnist Vijay Bhambwani calling it the widow maker’s market. Another FT story said that ‘A sustained Gulf conflict that destabilises global energy markets would deliver a further shock to confidence in markets, especially if it triggers concerns that the Federal Reserve is less likely to ease monetary policy.’ That’s apart from the hit to business sentiment, especially in the high-flying Gulf economies. My colleague Ravi Ananthanarayanan analysed the impact on metal prices, pointing out that, ‘As of now, the risks are seen as short term but that’s based on hope that the conflict will be over in a matter of weeks or a month or two.’

We also probed the impact on India’s hard won victory over inflation, looked at how it would affect India’s current account deficit, and its maritime strategy. IT firms, already battered by AI, may see a slowdown in discretionary spending and project delays in the region.

Our columnist Vivek Kelkar summed it up on the energy markets. He wrote: ‘Two variables dominate the current scenario. The duration of ongoing wars and navigability. A relatively short war in the Gulf may produce only transient price spikes. A prolonged impairment of the Strait of Hormuz, sustained or cascading infrastructure strikes, would reshape flows and reprice risk. Markets will now price for war risks, not supply and demand.’

Which sectors gain, which ones lose from this war? Our columnist Ananya Roy considered that question here, but she also said, ‘In the end, it will boil down to how long the war lasts. For now, the broader market is pricing in a temporary geopolitical shock. But if oil prices stay elevated longer, investors should brace for a deeper impact. Goldman Sachs pencils in a 2 percent hit to India Inc.’s earnings from every 20 percent rise in the price of Brent Crude. Against the context of a nascent recovery in earnings, this could significantly dampen sentiment.’

We also lost no time in telling investors which beaten down stocks merit attention as the war risk premium spikes—our detailed list is here.

That divergence shows up starkly across markets. For example, if the stock market is any indicator, the US has done rather well, with MSCI USA down a mere 0.67% in this month to March 5. While MSCI UAE is down 6.4%, Saudi Arabia is up 0.6%. Korea is down a huge 12.7% this month, but then it’s still up 36% year to date.

The star of the show is Israel, up 3.9% this month to March 5 and 38.5% from a year ago. As we pointed out, ‘Here is a country actively engaged in the conflict, yet its benchmark index has climbed to record highs. The explanation lies in what investors believe the war could ultimately resolve. For decades, the Iranian regime has represented an existential shadow over Israel — funding proxy forces and sustaining a permanent threat. If this conflict genuinely weakens or removes that threat, the long-term investment case for Israel improves dramatically. Markets are not simply reacting to the present but are discounting a future in which Israel is safer.’

The Iranian regime is the only obstacle to a US-Israeli plan to reorder the Middle East, as we had pointed out here. On the other hand, FT’s Martin Wolf wrote that if, ‘new “strongmen” emerge with roots in the Revolutionary Guards. Trump then may seek a deal: we will leave you in power if you stop threatening your neighbours and let us share in the oil.’

At the moment, though, as Saibal Dasgupta writes, ‘the path to its ultimate objectives — regime change, nuclear disarmament, and regional dominance — remains fraught with uncertainty.’

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

SAMHI Hotels, Home First, Delhivery, Apeejay Surrendra Park Hotels, Is the worst of tariff uncertainty over for this textile exporter?Sedemac Mechatronics IPO, GNG Electronics, Auto sector, Which housing finance stock is worth a bet?

Markets

Tourism, infra funds most impacted as Equity NAVs slide amid West Asia tensions

SEBI’s portfolio overlap cap: A win for mutual fund investors

India Gold ETF inflows slow to $565 million in February

Financial Times

Can Nvidia’s margins last?

Companies & Sectors

Why India topping the skyscraper index is bad news

Coal India wins as power sector cuts fuel imports

For IT companies, doomsday predictions are yet to reflect in FY27 revenue estimates

Why Nestle and Unilever are quitting the global ice cream business

Credit card euphoria fades -- growth slows to a crawl

Economy & Policy

Key trends in sectoral shares and demand drivers in the new GDP series

India’s carbon course: Pricing emissions without cutting them?

The unique uranium moment in India-Canada ties

India may enter a regime where 7%+ growth, moderate inflation can co-exist

Why private capex revival should be made a priority

How is the sovereign gold bond market adjusting post-Budget?

Pro Economic Tracker

Tech & Startups

The importance of being Anthropic

AI contracts start at $10 million while traditional deals run into hundreds of millions: Cognizant CFO