As the ongoing United States-Israel-Iran war in West Asia reels global equities throughout the week, another setback to the Indian stock market has come in the form of Morgan Stanley downgrading it.
According to a report by Bloomberg, the global brokerage has turned cautious on Asian markets as the war in the Middle East exacerbates the energy crisis.
India was one of the most exposed to the potential gas supply disruptions from Qatar, which led to the downgrade, according to the report.
It has placed the Indian stock market at an equal-weight in its latest reshuffle of the grading.
“We stay defensive,” Morgan Stanley strategists Daniel Blake and Jonathan Garner wrote in a note dated March 5, according to the report.
“Asia remains critically dependent on Middle Eastern supply of crude oil, refined products and LNG, and we believe the market is too complacent about supply chain risks.”
After an attack from Iran, the Qatar government had shut down one of its natural gas refineries earlier this week. Since Wednesday, the Qatari government has stopped gas liquefaction, according to some reports.
It would take at least a month for the production to reach normal levels. India used to import about 40 percent of its natural gas needs from this refinery.
The energy crunch has only worsened after the blockade of the strategic Strait of Hormuz by Iran, impacting 20 percent of the crude supplies of the world.
Morgan Stanley said that an extended war and supply disruption could result in a steep surge in oil and gas prices and further pressure the import-dependent Asian region. This may lead to earnings downgrades, it said.
The Bloomberg report also said that global investors are pulling money out of emerging Asian markets. Since the onset of the war, foreign investors have been net sellers of about $1.3 billion from India.
Apart from the war concerns, the disruption due to AI will also nudge global investors to wait for some time before shifting back to India, the brokerage said.
