The recent US military action in Venezuela, including the capture of President Nicolas Maduro, has introduced a new layer of complexity to global markets, prompting investors to reassess their positions, particularly concerning Indian stocks with exposure to the Latin American nation. While the overall impact on the Indian stock market is expected to be limited, certain sectors and companies are likely to experience volatility and shifts in fortune.

Impact Overview

The Indian equity market is expected to remain relatively stable, but rising crude oil prices may negatively affect oil and oil-related stocks. However, this impact is projected to be limited, with oil stocks expected to recover quickly. Heightened geopolitical uncertainty is expected to drive investors toward safe-haven assets like gold and silver, leading to a potential gap-up opening for these commodities.

Key Stocks to Watch

Several Indian companies have notable exposure to Venezuela across various sectors:

• Oil and Gas:

  • ONGC Videsh Ltd (OVL): OVL, the overseas arm of ONGC, holds equity stakes in two Venezuelan oil projects, making it a key player to watch. A US-led restructuring of Venezuela's oil sector could unlock approximately $500 million in unpaid dividends to ONGC from its San Cristobal field.
  • Reliance Industries (RIL): RIL has historically been a major importer of Venezuelan crude. Easing sanctions could benefit RIL through increased supplies and improved cash flows.
  • Indian Oil Corporation (IOC): IOC is a consortium partner in Venezuela's Carabobo heavy oil project, with exposure through equity participation.
  • Oil India: Oil India is a minority partner in a Venezuelan oil joint venture alongside ONGC and IOC.
  • Mangalore Refinery and Petrochemicals (MRPL): MRPL has sourced Venezuelan oil in the past, making it susceptible to supply chain disruptions.

• Engineering:

  • Engineers India: Engineers India has an on-ground presence in Venezuela, with an overseas office in Caracas supporting international business activities.

• Pharmaceuticals:

  • Sun Pharma: Sun Pharma operates through a registered Venezuelan subsidiary.
  • Glenmark Pharma: Glenmark Pharma runs operations via a locally registered arm.
  • Cipla: Cipla has historically exported essential medicines to Venezuela, highlighting its commercial links.

• Metals and Industrials:

  • Jindal Steel & Power: Jindal Steel manages an iron ore complex in Venezuela. Instability could disrupt mining, logistics, and export infrastructure, affecting output and valuations.

Sector-Specific Impacts

• Aviation and Transportation: These sectors may face headwinds due to rising crude oil and jet fuel prices, which pressure profitability as fuel costs constitute a significant portion of operating expenses.
• Paint and Tyre Stocks: Companies in these sectors may experience a dip as rising crude prices lead to increased raw material costs.
• IT and Exports: Indian IT giants may experience marginal benefits in rupee terms earnings if the US dollar strengthens.
• Defense Stocks: Speculative interest in Indian defense stocks may rise due to the direct US involvement, aligning with the theme of increased global military readiness.

Expert Opinions and Market Projections

Market experts anticipate a gap-up opening for crude oil, gold, and silver prices. COMEX gold may reach $4,380 per ounce, while silver could touch $75 to $78 per ounce. Brent Crude oil prices are projected to reach $62 to $65 per barrel. On the MCX, gold may hit ₹1,40,000 per 10 grams, and silver could reach ₹2,45,000 per kilogram.

Geopolitical Factors

The involvement of Russia and China, who have historically supported Venezuela, introduces geopolitical complexity. Escalation involving these countries could shift the global power balance, potentially impacting global markets.

Long-Term Outlook

If Venezuela's oil is integrated into the global market without sanctions, it could lead to lower energy costs, benefiting India's fiscal deficit and inflation targets. A US-led takeover or restructuring of Venezuela's oil sector could also unlock close to $1 billion in long-pending dues for India.