How US-Iran war has put small Indian companies at risk
What's the story
The ongoing US-Iran war has put the capital expenditure (capex) investment of at least 800 small and medium enterprises (SMEs) in India at risk. These companies had collectively invested $1.3 billion in the United Arab Emirates (UAE) over the past six months, Moneycontrol reported. The impact is expected to be especially severe on firms in the retail and hospitality sectors, which account for nearly $400 million of these investments.
Risk assessment
SMEs more vulnerable than conglomerates
SMEs are more vulnerable than conglomerates with Middle East investments, as they lack the financial strength to absorb losses from such geopolitical crises. However, market participants believe that despite the current turmoil in the region, the long-term potential for investments in UAE remains intact. For instance, Mumbai-based coffee roaster Sub ko Coffee invested $210,000 to set up a wholly-owned subsidiary in UAE.
Investment details
Concentration risk for small firms
Other companies that have invested in UAE include Brahm Lifestyle Products, which put in $2 million, and Idam Natural Wellness, which invested about $680,000. Rahul Turki from Grant Thornton Bharat said Indian SMEs with recent exposure to the UAE are more vulnerable than they would be in a stable operating environment due to concentration risk. This is when smaller firms invest heavily in one market or rely on a narrow supplier base.
Insurance gap
War insurance not considered necessary until now
Amit Singhania from Areete Law Office warned that these companies could suffer losses and business disruptions due to the war. He noted that most of these small firms don't have active war insurance policies, as such a scenario was considered unlikely until three weeks ago. Reports indicate strikes and debris were seen near Palm Jumeirah, a Dubai locality with luxury hotels like Fairmont The Palm.
Optimism persists
Companies remain optimistic about UAE market
Despite the short-term challenges, many companies are still optimistic about the Middle East. Sagar Daryani, President of NRAI and Co-Founder/CEO of Wow! Momo, said they plan to open 100 stores in the region in the next three to four years. He added that while tourism-related business may be affected temporarily by this conflict, local demand remains strong.