Iran-Israel conflict: These listed companies on D-Street may feel jittery; here’s why

Investors on Dalal Street lost nearly Rs 17 lakh crore in just four trading sessions because the escalation of conflict between Israel and Iran dampened market sentiment. 

The cumulative market capital of the BSE-listed firms tanked to Rs 460.89 lakh crore on October 4, 2024, from Rs 477.93 lakh crore on September 27, 2024. Going ahead, any further rise in tensions in the Middle East makes a case to take a fresh look at companies that generate some revenue from these two countries.

Data shows that domestic firms from across sectors—including pharmaceuticals, ports and information technology—have some exposure to Israel, starting with pharma major Sun Pharmaceuticals, which has a strong presence in Israel through its majority stake in Taro Pharmaceutical Industries. The company in June announced the completion of the merger of Taro Pharmaceutical with its subsidiary.

“As part of this merger, Sun Pharma acquired all outstanding ordinary shares of Taro other than the shares already held by Sun Pharma or its affiliates. As a result of the merger, Taro is now a private company and wholly owned by Sun Pharma. Sun Pharma has been the majority shareholder of Taro since 2010,” the company said in a regulatory filing.

As per the latest annual report, Sun Pharma generates 14% of its revenue from the rest of the world which includes Western Europe, Canada, Israel, Japan, Australia and New Zealand (ANZ) and other markets.

Shares of Sun Pharmaceutical declined around 2% for the week ended October 4. On the other hand, the BSE Healthcare index and the benchmark BSE Sensex declined around 2% and 4.5%, respectively, for the week ended October 4.

Vinod Nair, Head of Research, Geojit Financial Services said, “The bearish sentiment continued as investors are monitoring the escalating conflict in the Middle East and have adopted a sell-on recovery strategy. Crude prices have moved up sharply but may be restricted due to an increase in production from OPEC+. The pessimism on the market is expected to continue in the near term amidst rising crude prices and fund flows to cheaper markets like China.”

IT majors Tata Consultancy Services (TCS) and Infosys also have a presence in Israel. TCS in its latest annual report said that TCS and Jaguar Land Rover (JLR) launched JLR’s Open Innovation program in Tel Aviv to foster disruptive mobility innovation and strengthen relationships between JLR and Israeli start-ups, scale-ups, corporate entities, investors and academia as part of JLR’s Reimagine strategy.

“This partnership will leverage TCS COIN in Israel to identify local technology offerings and scale them to global mobility solutions and services,” TCS said adding geopolitics and macroeconomic volatility can affect demand for the company’s services. The IT major generates 2.1% of its revenue from the Middle East and Africa.

Infosys also has a presence in Israel through its 100% subsidiary Panaya Ltd, which reported a turnover of Rs 342 crore and profit after tax of Rs 33 crore for the year ended December 2023.

Shares of Adani Ports also hogged the limelight during the week. The company operates the Haifa Port in Israel. “Our operations in Haifa Port, Israel’s largest port, provide us with access to the busy Mediterranean and opportunities for expansion in the Middle East,” Adani Ports and Special Economic Zone said in its latest annual report adding the company effectively owns 70% stake of the Haifa Port, Israel. Shares of Adani Ports retreated nearly 3% in the truncated week ended October 4.

Market watchers believe that investors should also keep an eye on oil and gas companies including IOC, BPCL, HPCL, ONGC, among others in India as the country imports a significant portion of its crude oil from the Middle East and rising tensions could lead to supply disruptions or price volatility. Any rise in crude prices will increase costs for these companies and could affect profitability. On the other hand, rising oil prices lead to increased fuel costs, which directly impact the aviation sector due to higher jet fuel prices. The price of Brent crude oil in the international markets has spiked by more than 10% in just one week ended October 4, 2024.

A small-cap firm Punjab Chemicals & Crop Protection is also on the list. The company generates 5% of its revenue or Rs 44 crore from Israel in FY24. Ratnaveer Precision Engineering is another smallcap company which also generates some revenue from Israel, data available with Ace Equity showed.
Krishna Appala, Sr Research Analyst, Capitalmind Research said, "Two major events in the week gone by have significantly impacted our markets: SEBI's new F&O regulations and the increasing geopolitical tensions between Iran and Israel. The ongoing tensions in the Middle East, particularly between Israel and Iran, have added volatility to global markets, especially with crude oil prices rising by over 5% in the past two days. The situation escalated after a missile strike in Beirut and retaliatory threats between Israel and Iran."

“Although OPEC+ has reaffirmed plans to increase output in December, concerns remain about potential impacts on Iran’s oil infrastructure. The key lesson here is that while we cannot predict the future, it’s important to have a high-level plan and not react in panic. These geopolitical flare-ups tend to occur periodically, and though the situation may seem critical now, such tensions have arisen before. Nuclear weapons act as a deterrent, ensuring they are never used, while more powerful arms are developed with the hope of avoiding conflict altogether. In the end, this too shall pass, and staying calm remains the best strategy,” Appala said.