Our markets are volatile with recent events of Iran-Israel tensions and the potential for a war-like scenario taking a toll. While we do not purport to be experts on geo-political event outcomes, recent history suggests that these events take some time to de-escalate as global leaders work towards limiting both direct and collateral political implications to countries involved in such attacks. History shows that such conflicts have nearly always created near-term volatility which in hindsight, also show up as long-term opportunities.
Exhibit I above highlights some war-like situations the world has faced in the recent past and market (via headline index) returns in the subsequent 12 months since the conflict broke out. One clear and counterintuitive trend emerges, that the near-term volatility while being high on fear, became a good time to invest. Nifty 50 (the most liquid stocks in the large caps space) has historically delivered good returns post the initial turmoil, much higher than the intuitive “flight to safety’’ asset classes returns as an example.
The current conflict could potentially inflict different levels of pain for different economies but the Indian economy is structurally better positioned barring serious oil spikes beyond the imagined levels. Historically, such periods of pain have had a cascading effect by putting pressure on our CAD and in turn on exchange rates and bond yields. But CAD levels are fairly comfortable thus far and the RBI has been holding forth to curtail inflation as seen with