NEW DELHI, Mar 15: Escalating tensions between the United States and Iran are likely to keep financial markets volatile in the near term, with market experts highlighting both risks and potential opportunities for investors amid the uncertainty.
N. ArunaGiri, CEO of TrustLine Holdings, said that historical trends suggest markets often witness the sharpest corrections in the initial days of geopolitical conflicts.
“Almost without exception, in most crises, the bulk of the price damage-particularly in the Indian markets-tends to happen within the first few days of the outbreak of the conflict. After the initial shock, markets may remain volatile for some time, but historically the sharpest correction usually occurs in those early days,” he said.
According to him, the current tensions between the United States and Iran could follow a similar pattern, though volatility may be higher due to the strong link between the crisis and global crude oil supplies passing through the Strait of Hormuz.
“The current crisis triggered by the US-Iran tensions may not be very different in that sense. However, since the situation has strong linkages to crude oil prices via the Hormuz Channel, the volatility could be more intense this time around,” ArunaGiri said.
He added that the worst of the price damage may have already occurred during the initial phase of the crisis.
“Having said that, it is quite likely that the worst of the price damage may already have played out in the initial phase. What may follow from here is continued volatility, but not necessarily sustained or deeper price declines, particularly in the broader small and mid-cap space,” he said.
ArunaGiri also noted that geopolitical crises have historically presented investment opportunities for long-term investors.
“But if history is any guide, almost every geopolitical crisis has eventually turned out to be a compelling buying opportunity, especially in the broader small and mid-cap segments in the Indian context,” he said.
“It is time to invest, not to time the bottom. However, the approach needs to remain selective, bottom-up, and gradual. In the current environment, disciplined stock pickers are almost spoilt for choice, with no dearth of compelling opportunities emerging across the broader market,” he added.
Meanwhile, Aditya Agrawal, CFA and Chief Investment Officer at Avisa Wealth Creators, said the escalating tensions between Iran and the United States could influence investors through several channels beyond the immediate impact on oil prices.
“Escalating tensions between Iran and the United States can influence investors in multiple ways beyond just oil prices,” Agrawal said.
“First, market swings-geopolitical unrest triggers immediate ‘risk-off’ behaviour, leading to short-term equity volatility as investors seek clarity,” he said.
He further noted that rising crude prices could fuel inflationary pressures and affect monetary policy.
“Second, inflation and rates-rising oil prices drive up inflation, often forcing interest rates higher and hurting both stock and bond returns,” Agrawal said.
Highlighting trade risks, he said threats to the Strait of Hormuz could disrupt global supply chains.
“Third, trade bottlenecks-threats to the Strait of Hormuz spike shipping costs and disrupt global supply chains, slowing overall economic growth,” he said.
Agrawal added that geopolitical tensions also tend to trigger capital outflows from emerging markets.
“Fourth, currency shifts-foreign capital often flees emerging markets like India for ‘safer’ shores, weakening local currencies in the process,” he said.
He also pointed to asset reallocation during such periods of uncertainty.
“Finally, asset rotation-investors pivot toward safe havens like gold, while cyclical industries face significant selling pressure,” Agrawal added.
(UNI)
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