Israel-Hamas war: How Indian retail investors may be affected; top things to watch out for

Israel Hamas war: Indian retail investors, who have been profiting from small and midcap stocks for the past six months, may face negative consequences if the ongoing conflict between Hamas and Israel escalates and draws Iran into the battle, according to an ET analysis. On Monday morning, the Nifty headline index experienced a slight decline of around 0.5%. However, the broader market, particularly the mid and smallcap indices, suffered more significant losses, trading around 1% lower.
Out of the approximately 3,600 stocks traded on BSE, the majority of around 2,500 were in the red. As a result, the combined market capitalization of all BSE-listed companies dropped by Rs 2.4 lakh crore to Rs 317.43 lakh crore. This downturn could be more severe for smaller stocks, as many large cap stocks are already in a bear market phase. RIL, TCS and HDFC Bank, which are the three largest stocks in the Indian stock market, have given negative returns for two years now.
Kotak Institutional Equities, a domestic broking firm, recently referred to this rally as “madcap” and said there is limited value in most of the 150 midcap and smallcap stocks in its coverage universe. Kotak observed that these stocks are trading well above or near their 12-month fair values.

Sanjeev Prasad, from Kotak, stated, “The better-quality stocks may see time correction, while plenty of lower-quality mid- and smallcap stocks (within and outside our coverage) could see large price or lengthy period of time correction.”
On the other hand, top bluechip stocks are expected to outperform in the next 6-12 months as the current enthusiasm for large, mid-, and smallcap stocks may diminish over time and their valuations align with their fundamentals.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, advises caution amidst the Israel-Hamas conflict. He suggests that investors refrain from taking significant risks and wait for the situation to unfold. He further recommends that long-term investors gradually accumulate high-quality stocks during market declines.
Sanjiv Bhasin of IIFL Securities predicts that the volatility in the market will settle down in the next two days. He believes that historically, markets tend to stabilize after the initial escalation of conflicts.
However, investors should be aware of increased FII outflows and the potential for a sharp rise in crude oil prices due to concerns about supply disruptions across the Middle East.
ANZ Bank analysts state that increased geopolitical risk in the Middle East will likely support oil prices, leading to higher volatility. InCred Equities, while issuing a sell call on oil marketing companies, warns of a potential energy crisis if Iran is attacked.
“Attack on Iran by Israel or vice versa may lead to disruption of trade in Strait of Hormuz. Almost 35% of the global LNG trade and almost 21% of the global oil passes through this narrow strip of sea. Also, rising exports from Iran were responsible for extra tanker requirements. To some extent, Iran was balancing the crude market. If Iran is attacked, then crude flow can stop,” InCred said.