India Inc not facing much problems because of Middle East conflict: CRISIL Ratings

Mumbai: The ongoing conflict in the Middle East, confined mainly to the Gaza region now, has not impacted India Inc much, according to CRISIL Ratings.

It has caused only negligible disruption in India’s trade so far. 

Some sectors such as fertilisers and diamonds — both cut and polished — may see a slight, but manageable, impact, while for most others the impact will be insignificant.

But the conflict has driven up prices of gold and crude oil. “Their trajectories will bear watching, especially crude oil, given India’s high dependence on its import. Also, elevated crude oil prices have a cascading impact on a host of other sectors that consume the oil itself or linked raw materials,” according to the report released on Tuesday evening. 

India’s trade with Israel is relatively low, accounting for 1.9 per cent of total exports and 0.3 per cent of total imports last fiscal. The merchandise exports mainly comprise polished diamonds and petroleum products, including refined hydrocarbons, while imports largely comprise industrial equipment, fertilizers, rough diamonds and precious stones.

For domestic diamond polishers, Israel is primarily a trading hub. Exports to the country were ~5 per cent of total diamond exports from India last fiscal. Additionally, ~2 per cent of all roughs imported are from Israel. Polishers also have alternative trading hubs, such as Belgium and the United Arab Emirates, with ultimate customers based in the United States and Europe.

Israel is a major global producer of muriate of potash (MoP) and among the top three countries that India imports from, accounting for ~25 per cent of all MoP imports last fiscal. However, the share of MoP (as final product or as an ingredient in other fertilisers) remains low at ~10 per cent of domestic fertiliser consumption. Additionally, India’s ability to source from other countries lowers the supply risk.

Since the Middle East conflict began in early October, gold prices have surged 13-15 per cent to over Rs 60,000 per 10 gm.

Further sharp increases would materially dent affordability and growth of gold jewellery retailers. Their inventory- related borrowings could then rise, which can have some bearing on debt metrics.