Tensions in the Middle East have heightened, with the escalating conflict between Iran and Israel sparking concerns over a potential wider regional crisis. If the conflict worsens, the impact on global crude oil prices could be substantial due to Iran's role as a key oil producer. Although crude oil prices are currently stable, any sharp increase could disrupt central banks' rate-cutting strategies. Inflationary pressures from rising oil costs may hinder economic recovery efforts, particularly in emerging markets such as India, which imports 80 percent of its oil. This scenario could weigh on investor sentiment and exacerbate existing economic challenges.
The Indian market is already in a correction phase, influenced by a stronger dollar index following Donald Trump's 2024 U.S. Presidential election win. The persistent Middle East tensions are adding to the negative market sentiment, leading investors to turn to safer assets such as bonds and gold.
Just this week, the Indian indices shed over 2.5 percent, ending in the red for the second straight week. Meanwhile for November so far, the Nifty50 has lost 2.7 percent till date after a 6.2 percent decline in October. It has also tanked over 10 percent from its record high hit in September.
With the Middle East crisis persisting, industry leaders share insights on how Indian investors can protect their portfolios from potential economic shocks. While the situation has brought both risks and opportunities, understanding the implications are vital.
Jathin Kaithavalappil, Assistant Vice President at Choice Broking, pointed out the increased market volatility and its potential spill-over effects on investor sentiment. "To protect portfolios, it is important to look into extending investment horizons to include high-quality large-cap stocks and defensive sectors that can withstand sudden corrections," Kaithavalappil recommended.
Dr. Ravi Singh, SVP of Retail Research at Religare Broking Ltd., outlined the potential risks posed by the prolonged Middle East crisis, such as spikes in crude oil prices and their impact on inflation and the rupee. "To safeguard portfolios, diversifying into defensive sectors like IT, healthcare, and FMCG can provide stability during uncertainty," Singh recommended. He also suggested adding gold as a hedge against geopolitical risks and inflation.
Atul Parakh, CEO of Bigul, underscored the importance of a multi-faceted strategy. "Maintain rupee-cost averaging through disciplined SIP investments during market corrections, hold energy stocks as a natural hedge, and allocate more to defensive sectors like FMCG and pharmaceuticals," Parakh advised. He also highlighted gold's role as a safe haven, suggesting it should make up 10 to 15 percent of a portfolio. Parakh added, "India's current account deficit is minimal, and the country’s foreign exchange reserves at $692 billion place us well to handle external shocks." However, he warned that disruptions in the Strait of Hormuz could push Brent crude prices above $95 per barrel, affecting market sentiment.
Sujit Modi, CIO of Share.Market, pointed out India's dependency on oil imports and the vulnerability to price fluctuations. "Higher transportation costs could lead to increased inflation, impacting sectors dependent on crude oil," Modi explained.
Trivesh, COO of Tradejini, added that balancing portfolios with defensive assets and focusing on export-driven stocks could help hedge against sudden market swings. "Indian investors have shown resilience, as seen in the record-breaking SIP inflows in October 2024. The goal is to stay prepared for volatility while capitalizing on growth opportunities," Trivesh said.
Experts agree that a proactive approach is crucial when dealing with the potential impacts of the Middle East crisis. Implementing strategies such as maintaining disciplined SIPs, investing in defensive sectors, and allocating to safe-haven assets like gold can provide a buffer against uncertainty. India’s strong foreign exchange reserves and minimal current account deficit position it well to withstand shocks, but investors must remain vigilant as the geopolitical landscape continues to evolve.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
