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How should mutual fund investors think about their portfolios amid the US-Israel conflict with Iran?
According to a note by Axis Mutual Fund, for India, geographically distant but economically exposed, the more relevant question is not whether near-term volatility will rise, but whether such episodes meaningfully alter the country’s long-term investment trajectory. History suggests they rarely do.
Wars and geopolitical conflicts typically trigger short-term market turbulence, but they have not resulted in sustained equity underperformance, particularly when conflicts remain regional. Indian markets have demonstrated this resilience repeatedly, absorbing external shocks, repricing risk briefly and then reverting to fundamentals, the note said.
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Recent moves by the US and Israel to strike Iranian targets have triggered a classic “risk-off” mood among investors, where money tends to flow out of riskier assets like equities and into safer ones such as gold, silver and government bonds.
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The conflict has pushed up prices of traditional safe-haven assets. Precious metals like gold and silver have surged as many investors seek protection from market volatility.
Shrikant Chouhan, Head Equity Research, Kotak Securities, told ETMutualFunds that currently the market appears directionless, making it difficult to predict the short-term trend. Markets generally dislike uncertainty, and the prevailing global concerns are keeping sentiment volatile. From a 12-month perspective, current levels look attractive for investing in large-cap stocks.
While investors rarely catch the exact bottom, adopting a staggered investment approach during major declines can help build meaningful exposure. Gradual accumulation at lower levels increases the probability of generating alpha over the medium to long term, Chouhan added.
The note by Axis Mutual Fund highlighted that oil is the most immediate transmission mechanism. India imports more than 80% of its crude requirements, making it sensitive to Middle East instability. A sharp rise in crude prices raises input costs, widens the current account deficit and feeds inflation.
Equity markets tend to react quickly, particularly in oil-sensitive sectors such as aviation, paints, cement and chemicals. However, history shows that oil shocks alone have not derailed Indian equities unless they persist long enough to damage growth and monetary stability.
Nehal Meshram, Senior Analyst, Morningstar Investment Research India, said mutual fund investors should stay anchored to long-term goals and avoid making reactive portfolio changes based on short-term market moves. During such periods, it is essential to stick to long-term asset allocation across equities, debt and gold.
“Avoid panic selling in equities, as this often results in locking in losses right before markets stabilise. For investors with ongoing SIPs and long horizons, it makes sense to continue investing steadily.”
Meshram further said investors should focus on portfolio quality rather than short-term tactical trades. If markets correct further, consider gradual rebalancing instead of trying to time the bottom. A portfolio tilted towards large-cap, flexi-cap or multi-cap funds can help manage downside risk. One should avoid taking excessive exposure to small-cap or narrow sector themes during such volatile periods.
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Periods of geopolitical stress typically strengthen the US dollar, putting pressure on emerging market currencies, including the rupee. The note by Axis Mutual Fund showed how the Nifty has behaved over the past 15 years during conflict-driven stress events such as Arab Spring or Middle East unrest (2011), Uri surgical strikes (2016), Russia-Ukraine war (2022), Israel-Hamas conflict (2023), and Operation Sindoor (2025).
During the Arab Spring or Middle East unrest in 2011, it was a volatile year, driven more by global growth fears than geopolitics, and markets recovered as domestic fundamentals stabilised. During the Russia-Ukraine war in 2022, the Nifty 50 fell 5% on invasion day but finished the year in positive territory, despite oil shocks and aggressive global rate hikes.
At the time of Operation Sindoor in 2025, initial market jitters gave way to stability as escalation risks remained contained, reinforcing the market’s tendency to look through short-term uncertainty.
The note said the pattern is consistent: conflict-driven drawdowns are shallow and temporary, while longer-term returns are dictated by earnings growth, liquidity and domestic demand.
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Anshi Shrivastava, Head – Personal Finance Training at 1 Finance, told ETMutualFunds that given current market volatility due to global conflicts, Indian investors should remain calm and focus on long-term investment goals. Mutual funds typically experience only brief declines before recovering.
While sharing how the benchmark indices have performed around various geopolitical events, Shrivastava said that for equity mutual funds, maintaining a 10-15 year investment horizon is important to achieve optimal growth. Currently, adding gold and silver to a portfolio is advisable.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
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