The Sensex is on track to close at around 4,000 points for the week, while the Nifty has fallen nearly 5% in just five trading sessions as the Iran war wreaks havoc in Middle Eastern countries. With Brent crude reaching around $100, bulls have been put on the defensive as foreign institutional investors continue to sell off, which has dragged down even blue-chip large caps.
The carnage has spread to currency markets. The Indian rupee fell to a lifetime low of 92.4325 per dollar on Friday, from Thursday’s all-time low of 92.3575. The currency has lost 1.5% since the start of the Iran conflict, fueled by concerns that higher oil prices will affect growth-inflation dynamics and capital flows for South Asian economies.
Analysts warn that the outlook will worsen. A protracted Middle East conflict could push the rupee above 95 per dollar, especially if energy prices continue to rise.
FIIs have withdrawn about Rs 52,000 crore from Indian markets so far this month, adding to the selling pressure.
Still amid the bloodshed, market veterans are sounding a contrarian note, arguing that panic may create exactly the kind of buying opportunity that long-term investors should embrace.
“If one looks at past geopolitical crises, a very interesting pattern emerges in the way markets have reacted,” said N Aruna Giri, CEO of Trustline Holdings. “Almost without exception, in most crises, most of the price losses—especially in Indian markets—occur within the first few days of the outbreak.” Aruna Giri acknowledged that the current crisis, with its strong link to crude oil prices through the Strait of Hormuz, could create a more intense movement. “However, it is highly likely that the worst price damage has already been done in the first round.” he said. “This is the time to invest, not the time to end.”
He said the approach should remain selective, downward and gradual. In the current environment, disciplined stock pickers are almost spoiled for choice, with a lack of significant opportunities in the broader market, market veterans said.
Axis Mutual Fund pointed to that historical perspective. The fund noted that over the past 15 years, Indian equities have shifted from regional conflicts, border tensions and global wars to multiple geopolitical events with only brief and minimal declines. In almost every case, markets stabilized when it became clear that economic growth, earnings and policy frameworks remained stable.
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“Periods of uncertainty are overcome with discipline, diversity and patience,” Axis said. “Staying invested through volatility has consistently proven more profitable than reacting to fear, as fundamentals reassert themselves over time.”
From a valuation perspective, the recent correction has made the markets more attractive, according to Axis. Valuations are more constrained, income expectations are improving, economic momentum is accelerating, and domestic flows are supporting.
WhiteOak Capital Mutual Fund advised investors to resist the temptation to abandon their strategic asset allocation. “When a recession hits and markets fall, your equity allocation automatically falls as a percentage of your portfolio,” the fund said, suggesting investors rebalance if they’ve moved out of their pre-assigned bonds.
“Investors who sell on sentiment during geopolitical shocks tend to underperform those who are patient and disciplined,” White Oak warned. “Not because they are bad at picking investments, but because they exit at the wrong time, stay on the sidelines, and then enter near the top, or never enter again.”
One area that is preventing widespread sales is pharmacies. “The sector is not affected by external shocks. In fact, the depreciation of the rupee is positive for the sector, which is a major exporter,” said Dr VK Vijayakumar, head of investment strategy at Geojit Investments Limited. “It appears that portfolio changes are occurring in favor of pharmaceuticals.”
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His advice for investors navigating the crisis? “There is nothing to do in these difficult times but to remain calm and continue to invest systematically.”
The question now is whether the initial shock has run its course or whether oil prices amid Middle East conflicts threaten India’s delicate economic balance and deeper pain lies ahead.
(Disclaimer: The suggestions, recommendations, views and opinions given by the experts are their own. They do not represent the views of The Economic Times)
