Investing in turbulent times
- Abraham Cherian
- 2 days ago
- 7 min read
Indian markets have fallen sharply as the war in West Asia/Gulf has pushed crude oil prices higher, spooked global investors, and triggered heavy selling in Indian equities. In this environment, an equity‑heavy portfolio will feel the full force of volatility, whereas a risk‑adjusted asset‑allocation mutual fund plan should see shallower drawdowns and a smoother path to recovery over 3–5 years.
What just happened in the markets?
Since the West Asia conflict escalated, the Sensex has fallen over 5% from late February, with single‑day falls of 2,300–2,700 points and the Nifty 50 dropping 700+ points in early trade on some days. Crude oil has spiked above 115–120 dollars a barrel as investors fear supply disruption through the Strait of Hormuz, a key route that carries about 20% of global oil shipments and a large share of India’s crude imports.
Foreign portfolio investors have turned aggressive sellers, pulling out tens of thousands of crores in March alone, while domestic investors (via mutual funds and SIPs) have been net buyers but unable to fully offset the foreign selling. The result is a classic “risk‑off” phase: indices at 10–11‑month lows, higher volatility (India VIX spiking), pressure on the rupee, and broad‑based weakness across sectors, especially banks, autos, and companies with Middle East exposure.
Takeaway: This is not a routine correction driven by earnings; it is a geopolitics‑plus‑oil shock playing out through sentiment, crude prices, and foreign flows.
Why Indian markets are hit so hard
The same headline—war in the Gulf—hurts India through a few clear economic channels:
India imports most of its crude; higher oil directly pushes up inflation, raises input costs, and can hurt growth and corporate profitability.
A prolonged disruption threat in the Strait of Hormuz raises fears of supply shortages, higher freight costs, and pressure on the current account deficit and rupee.
Global investors demand a higher “risk premium” for Indian equities when oil is high and geopolitics are uncertain, leading to sustained FPI outflows.
History, however, shows that geopolitical shocks—even Gulf War‑type events—usually cause sharp but temporary drawdowns; markets tend to recover once uncertainty and energy prices stabilise.
Analogy: Think of this as severe turbulence on an otherwise stable flight—uncomfortable and scary, but usually not a reason to jump out of the plane.
Takeaway: The trigger is geopolitical, but the real drivers of this fall are crude prices, imported inflation, rupee fears, and risk‑off foreign flows.
Two portfolios: equity‑heavy vs risk‑adjusted
Let’s define two typical mutual fund portfolios:
Portfolio A – Equity‑heavy: 80–100% in equity mutual funds, often large/mid/small‑cap funds, very little allocation to debt or gold.
Portfolio B – Risk‑adjusted asset allocation: A planned mix across equity, debt, and possibly gold (for example 50–60% equity, 30–40% debt, 5–10% gold), rebalanced periodically as per risk profile.
How they behave in a crash
Aspect | Equity‑heavy portfolio (A) | Risk‑adjusted portfolio (B) |
Fall during sharp crash | Falls almost as much as market indices; drawdowns can be 20–30%+ in deep events. | Falls less; debt and gold cushion equity falls, so drawdowns are typically shallower. |
Volatility | Daily swings are large; emotionally harder to hold. | Smoother experience; volatility dampened by defensive assets. |
Recovery when markets bounce | Recovers faster and more strongly when equity rebounds. | Recovers steadily; upside slightly capped, but journey is calmer. |
Suitability | Aggressive investors with long horizon and high risk tolerance. | Most goal‑based retail investors seeking balance of growth and stability. |
Example: If Nifty falls 20%, an all‑equity SIP portfolio can also be down close to that, while a balanced asset‑allocation plan might be down 8–12% depending on its mix, because debt funds and gold often hold value or gain when risk assets fall.
Takeaway: You don’t control the crash, but you do control your asset mix. That mix largely decides how much pain you feel and how quickly you recover.
6‑month, 3‑year, 5‑year view: what history suggests
No one can predict precise levels, but we can use history of past conflicts and oil shocks to frame expectations.
Studies of global markets show that after major geopolitical events, equity indices are often higher one year later in roughly 70% of cases, with average single‑digit to low double‑digit returns. Even serious oil‑related conflicts like the 1973 Arab oil embargo and the 1990 Kuwait invasion caused double‑digit drawdowns but were followed by recoveries once energy markets stabilised. Indian data from events like the Gulf War, Kargil, Uri, Pulwama and later border incidents show that drawdowns were typically short‑lived and recoveries increasingly swift as domestic liquidity deepened.
Using that backdrop:
Next 6 months: turbulence mode
As long as the conflict and oil remain unpredictable, volatility is likely to stay elevated.
Central banks and governments will be focused on inflation, currency stability, and growth, which can cap near‑term market upside even if indices stop falling.
How each portfolio may fare:
Equity‑heavy (A):
High probability of big swings—sharp down days followed by relief rallies.
Mark‑to‑market losses can look scary; behaviour risk (panic selling) is the real threat, not the volatility itself.
Risk‑adjusted (B):
Expect modest drawdowns and smaller daily moves.
Debt/gold components can benefit from risk‑off sentiment and rupee weakness, cushioning the impact.rbcwealthmanagement+1
Takeaway: Next 6 months are about survival of behaviour, not maximising returns. The more aggressive your equity weight, the more discipline you need.
3‑year view: fundamentals re‑assert
Over 3 years, markets typically reflect earnings growth and economic fundamentals more than one specific conflict, unless it permanently changes the global order.
India still has structural drivers—domestic consumption, capex, financialization of savings, and strong SIP flows—that historically have supported corporate earnings and equity returns once shocks pass.
How each portfolio may fare:
Equity‑heavy (A):
If you stay invested, history suggests a strong chance of recovery and reasonable growth over 3 years, but the path will be bumpy.
Those who panicked and sold near the bottom tend to lock in losses and miss the rebound—behaviour, not asset class, usually destroys wealth.
Risk‑adjusted (B):
Likely to show more consistent compounding with smaller drawdowns and fewer sleepless nights.
May underperform a pure equity portfolio in a roaring bull phase, but with far better risk‑adjusted returns for most investors.
Analogy: Over 3 years, the question shifts from “How bad is the storm?” to “How strong is the ship?”—and a balanced ship rides waves better.
Takeaway: At the 3‑year mark, staying the course usually matters more than trying to time exits and entries around war headlines.
5‑year view: today’s crash becomes a blip
Over 5‑year horizons, past geopolitical shocks—including Gulf War‑type events—tend to appear as short‑term dips on a long‑term uptrend chart rather than regime‑changing events.
For long‑term wealth creation, equities (via mutual funds) have historically outperformed cash and traditional fixed income, provided the investor stayed invested across cycles.
How each portfolio may fare:
Equity‑heavy (A):
For genuinely long‑term, high‑tolerance investors who did not capitulate, 5 years after a crash has often been a rewarding period as they bought more at lower prices (via SIPs or staggered lump sums).
Risk‑adjusted (B):
Likely to deliver a smoother but still meaningful wealth‑creation journey, well‑suited for goal‑based investing (retirement, education, etc.).
Takeaway: Five years from now, the bigger regret is usually “I didn’t stay invested” or “I didn’t invest enough”, not “markets fell in 2026 because of the Gulf war”.
Starting now vs already investing: how should you react?
1. Someone thinking of starting to invest now
If you are yet to start and are looking at scary headlines, it feels like the worst time to begin. Historically, drawdowns caused by fear, not by permanent economic damage, often become attractive entry points for long‑term investors.
Practical approach:
Start with a plan, not a prediction: Define your goals, horizon, and risk profile first, then decide your equity‑debt mix.
Favour SIPs / phased entry over big lumpsum: In a volatile market, rupee‑cost averaging through SIPs or a structured transfer plan helps you buy more units when markets are down without guessing the bottom.
Choose diversified funds over thematic bets on war, defence, or oil: Sectoral/thematic calls are tempting now but carry concentration risk and timing risk.
Takeaway: For a new investor, this phase is an opportunity—provided you enter gradually, with proper asset allocation and realistic expectations.
2. Someone already investing via SIPs
If you’ve been running SIPs and seeing red on your app:
Do not stop SIPs just because markets are down. Volatility is exactly when SIPs work best, as you accumulate more units at lower NAVs, improving long‑term returns.
Review, don’t react:
Check if your overall asset allocation is still aligned to your risk profile and goals.
If equity has fallen and is now below your target allocation, a controlled rebalance (adding to equity, not cutting it) may be warranted for long‑term investors.
Avoid timing exits: Selling now to “re‑enter when things are better” almost always results in missing the actual recovery.
Example: An investor who continued SIPs through the 2020 Covid crash ended up buying significant units at low prices and benefited from the subsequent sharp recovery; interrupting SIPs then would have hurt long‑term outcomes despite looking “safe” in the moment.
Takeaway: If your goals and risk profile haven’t changed, your default action should be to continue SIPs and stick to your plan, not to abandon it in panic.
Practical playbook for long‑term mutual fund investors
Here’s how to translate all this into action:
Re‑check your asset allocation.
Aggressive investors: Ensure you truly can handle the volatility of an equity‑heavy portfolio; if not, gradually move to a more balanced mix instead of exiting entirely.
Conservative/moderate investors: Confirm you have enough debt and possibly gold to sleep well through such phases.
Ring‑fence your emergency and near‑term money.
Next 1–3 years’ critical expenses or goals should ideally sit in safer assets (debt funds, fixed income), not be exposed to equity volatility.
Keep SIPs running; consider opportunistic top‑ups if your risk profile allows.
Continuing SIPs in quality diversified funds is a disciplined way to take advantage of lower valuations.
Any top‑ups should be within your asset‑allocation framework, not random “buy the dip” punts.
Filter noise; focus on data and history.
Recognise that wars and geopolitical events have repeatedly created short‑term panic but rarely changed the long‑term case for diversified equity investing.
Work with a qualified advisor.
Use this phase to tighten your plan, not chase tips or social‑media opinions. A SEBI‑registered advisor can help tailor allocation and behaviour coaching to your specific situation.
Final takeaway: For a long‑term mutual fund investor, the right response to this Gulf‑driven market crash is usually not to run away from markets, but to lean on a sensible asset‑allocation plan, continue (or start) disciplined SIPs, and give your portfolio 3–5 years to let fundamentals overpower today’s headlines.
Disclaimer: This content is for informational purposes only and does not constitute financial or tax advice. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
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