Markets at 11-month low amid US-Iran war: Should you invest?
What's the story
India's benchmark indices, the Sensex and Nifty, plummeted nearly 3% on Monday to hit a 11-month low. This decline was fueled by surging crude oil prices, downbeat international market cues, and relentless selling by foreign institutional investors. Vikas Khemani, the founder of Carnelian Asset Management, has warned that the Indian markets could witness a decline of up to 10% if global uncertainties don't ease. Despite this potential downturn, Khemani believes that "this is the time for money to be deployed."
Market resilience
Iran's retaliation and market impact
Khemani noted that Iran's continued retaliation, despite heavy leadership losses, indicates a strategy to sustain hostilities. He emphasized that such scenarios usually create short-term uncertainty rather than long-term damage to markets. However, he also acknowledged the unpredictability of these situations and their potential duration.
Economic stability
Long-term growth narrative remains unchanged
Khemani stressed that while short-term pressure on Indian markets is unavoidable, the long-term growth narrative remains unchanged. He identified supply chain disruptions and rising oil prices as primary risks, but not structural damage to the economy. He projected a downside of 5-7% in markets under current conditions, which could rise to 10% if crude oil hits $120 per barrel.
Investment strategy
SIP investors should stay put, says Khemani
For Systematic Investment Plan (SIP) investors, Khemani advised to stay put. However, for direct investors with available capital, he sees the current dip as an opportunity rather than a reason to retreat. He recommends a staggered investment approach—either time-based or index-level-based—to manage uncertainty in the market.
Energy dependence
Minimal economic impact from Middle East conflict, says expert
Khemani said oil is the main channel through which the conflict could impact India, given its reliance on energy imports. He believes that apart from possible supply chain disruptions and higher crude prices, the overall economic impact would be minimal. Khemani emphasized India's strong macros, including a manageable debt-to-GDP ratio, a healthy banking system, controlled inflation and fiscal deficit. He also noted that corporate funding is recovering and the country is sitting on fiscal and monetary stimulus.