SCI shares slide 6% as profit-taking, Middle East truce hopes cool shipping rally

Shares of Shipping Corporation of India (SCI) fell as much as 6.1% to Rs 221 on Tuesday, reversing some of the sharp gains from the past two sessions as investors booked profits and growing optimism around a potential truce in the Middle East conflict tempered fears of prolonged disruption to global shipping routes.

The downturn in SCI shares followed a near 18% rally across the last two sessions, fuelled by expectations of a surge in global tanker rates and mounting concerns over escalating tensions in the Middle East. Shares of peer Great Eastern Shipping Company also retreated, dropping 3.2% to Rs 972.70 on the BSE on Tuesday after gaining over 5% in the previous two sessions.

Profit-booking follows Middle East-driven rally

Indian shipping counters had seen strong investor demand last week, outpacing a broadly weaker market, after fears of global trade disruptions intensified amid renewed conflict in the Middle East. The surge came after an Israeli pre-emptive strike on Iran’s nuclear facilities reportedly killed several top commanders and scientists, stoking fears that Iran might retaliate by closing or disrupting the Strait of Hormuz, a critical artery for global oil and gas transport.Investor appetite had risen on expectations of higher freight and tanker rates, with ships expected to reroute to avoid the volatile region. Any closure of the Strait, a narrow chokepoint handling nearly 30% of seaborne oil and 20% of global LNG, could send energy and shipping prices soaring.

Truce hopes cool panic trade

On Tuesday, risk appetite shifted amid signs that equity markets were starting to price in a possible de-escalation. “Optimism that a truce will be reached appears to be stronger in equity markets than elsewhere,” said Jamie McGeever, Markets Columnist at Reuters. McGeever noted that while “gold gave back Friday’s gains” and oil settled lower after last week’s surge, “equity investors may have it right” in assuming that the broader fallout might be limited.Still, McGeever cautioned, “It’s a very fluid situation, so investors’ relief may be short-lived.” He added, “Unless there is a real adverse oil price shock, it will probably be a similar story this time around, although spiking inflation would be problematic for central banks.”JP Morgan echoed a more measured view, stating that while the Strait of Hormuz is a vital global shipping chokepoint, “The closure of Hormuz is a low-risk event as Iran would be damaging its own position, both economically and politically, by irritating its main customer.”

Implications for India

For India, a prolonged disruption in the Strait of Hormuz could be particularly costly. With over 80% of India’s crude oil imports coming from Gulf nations such as Iraq, Saudi Arabia, UAE, and Kuwait, any blockade would tighten supply and likely push up crude prices and shipping costs.

Also read | Oil prices rise as Iran-Israel conflict fans supply worriesWhile that scenario could benefit domestic shipping firms like SCI and GE Shipping through a spike in tanker rates, the broader economic impact, from inflationary pressure to a rise in import costs, could weigh on the market over time.

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