'Black swan events are becoming increasingly frequent'

If the war in the Israel-Gaza region escalates into a larger West Asian conflict, it could pose problems.

An overwhelming majority of CEOs of Indian companies see no long-term impact from the ongoing war between Israel and Hamas on their operations or sales, even as they view volatile crude oil prices and geopolitical instability as significant concerns, according to a dipstick survey of these top executives.

Of the 15 CEOs surveyed by Business Standard, 86.67 per cent stated the war would not affect their operations or investments, and that their operations in the region remained on course.

"Black swan events are becoming increasingly frequent. The geopolitical situation is both fluid and fragile, and I hope it doesn't unfold as portrayed in The Guns of August' by Pulitzer Prize winner Barbara Tuchman," commented the CEO of a Chennai-based firm, referencing the book about the early stages of World War I.

If the war in the Israel-Gaza region escalates into a larger West Asian conflict, it could pose problems. However, currently, 60 per cent of CEOs surveyed do not anticipate an increase in their costs.

"Wars often cause regional and sometimes global disruption, affecting normal economic activities. Regulatory approvals slow down, and new deals also stall," said a pharmaceutical exporter's CEO.

Another CEO expressed hope that there wouldn't be any significant deterioration but acknowledged the inherent unpredictability.

"India remains a secular growth story, and a vast majority of our sales are in India," said the top executive of a cement manufacturing company.

The ongoing war's impact on crude oil prices, however, will significantly influence their costs.

On October 27, Brent crude oil prices rose about 3 per cent to a one-week high of $90.48 a barrel due to concerns that tensions between Israel and Hamas could escalate into a broader conflict, disrupting global crude oil supplies.

The US West Texas Intermediate (WTI) crude rose $2.33 or 2.8 per cent, settling at $85.54 a barrel.

But oil analysts do not expect petroleum prices to spiral out of control and predict Brent crude oil to fluctuate between $90 a barrel and $100 a barrel, alongside any local escalations, such as involvement of Hezbollah or Iran.

Almost 53.33 per cent of the respondents expect the geopolitical scenario to worsen further.

"There hasn't been any major disruption in oil supply so far, hence oil prices are range-bound at the moment.

"A significant spread of the conflict and consequential disruption to oil supply could potentially cause elevated energy costs," said the CEO of a large steel manufacturer.

Among the respondents, 46.67 per cent noted that rising overseas fund costs have increased their finance costs against the backdrop of the 10-year US Treasury yield crossing 5 per cent for the first time in 16 years, indicating that US policy rates would remain higher for longer.

"Raising funds overseas could be extremely challenging for Indian companies as, after paying for forex cover, the rates can even rise to 11 to 12 per cent due to high Fed rate plus country risk, apart from respective company risk," said a top executive.

One CEO suggested that the war might lead to some additional business as undecided customers decide to join in.

"The volatility should support trading volumes. Also, if the markets correct, we could see more investors getting in," said an IT firm CEO.

However, most respondents do not foresee any new business opportunities resulting from the war's aftermath for their companies.

"Any war is ultimately a human tragedy; we don't see opportunities in such situations," said the chief executive of a metals company.

With inputs from Dev Chatterjee with Ishita Ayan Dutt, Sohini Das, Sourav Lele, Shine Jacob, Samie Modak, and Abhishek Kumar

Feature Presentation: Ashish Narsale/Rediff.com