Heightened geopolitical tensions in the Middle East have injected fresh volatility into global financial markets, with Indian equities witnessing sharp swings amid rising crude oil prices, foreign investor outflows and currency pressures.
In an interaction with BW Businessworld, Kush Gupta, Director, SKG Investment & Advisory, outlines how investors should interpret the current market turbulence through a historical and data-driven lens. From identifying sectors that could act as structural hedges to assessing the implications of foreign portfolio investor flows, valuations and oil price shocks, Gupta shares insights on how investors can position their portfolios and continue building long-term wealth despite geopolitical disruptions.
Edited excerpts:
The Middle East war has imparted sharp volatility in the Indian market, what should retail investors do?
The current market damage is steep and quantified, however history provides a powerful narrative. Data across past geopolitical events, including the Iraq War of 1990, Kargil 1999, 9/11, the Mumbai 26/11 attacks, Pulwama 2019 and Russia-Ukraine 2022, shows the Sensex delivered an average 16 per cent return in one month post event, 27 per cent in three months and 37 per cent six months after the initial shock.
The data backed prescription is unambiguous, stay invested majorly in quality large caps and some allocation could go to small caps, stagger fresh deployment using SIP style averaging and treat VIX spikes as entry signals, not exit alarms.
Which sectors are immune in war like conditions in India?
No sector is entirely immune, but the data gives a clear pecking order. In recent sessions defence, pharma and FMCG have been the structural defensives in this geopolitical cycle. However, OMCs, Capital Goods, Auto and banks have been the most vulnerable sectors to an oil price shock.
Every Re 1 of rupee depreciation adds 30-40 bps to operating margins for large cap Indian IT exporters. The INR has already crossed Rs 91.63 per USD as of 06 March, making Infosys, HCL Tech and TCS structural hedges against the same crude spike that hammers domestic facing sectors.
FIIs which were turning buyers in Indian markets have sold, will they buy other emerging markets?
The FPI reversal is fully confirmed by NSDL data, FPIs pulled out Rs 20,818.71 crore (approximately USD 2.29 billion) from Indian markets in the week ending 06 March 2026, across equity, debt and other instruments over four trading sessions, with the highest single session outflow of Rs 11,141.74 crore recorded on 05 March of which equity accounted for Rs 9,113.42 crore. This came immediately after FPIs had infused Rs 22,615 crore in February, the highest monthly inflow in 17 months, reversing the trend in just days as West Asia escalated.
The case for FPIs rotating into other EMs is weak. The rupee weakened from Rs 90.95/USD on 02 March to Rs 91.63/USD on 06 March, a direct consequence of sustained capital outflows, further reducing the attractiveness of Indian assets to dollar based investors who now face an additional currency headwind.
Indian market valuations have corrected along with increasing EPS, is now the time to take big bets?
Valuations are confirmed cheaper than peak but not at crisis level discount. The Nifty 50 PE ratio stands at 21.02 on a consolidated TTM basis as of 10 March 2026. The historical average Nifty PE on a consolidated basis is approximately 20-21, placing today's reading squarely at fair value, not a screaming buy, but also well below the extreme overvaluation of the 28-30x PE range seen at the 2021 peak.
Nifty is generally considered in the oversold range below a PE of 14 and in the overvalued range when PE approaches or exceeds 22, making today's 21.02 reading just inside the fair zone, with dividend yield of 1.28 per cent and P/B of 3.32 both in the ‘neutral to cautious’ territory.
Equity inflows remained positive for the 59th consecutive month through January 2026, reflecting institutional confidence in India's corporate earnings trajectory even through geopolitical noise. The data supports staggered accumulation in phases, not a single large lump sum bet. Prioritise large cap BFSI, consumption and upstream energy where earnings visibility is highest.
If the war continues and there's a dearth of crude oil reserves, how would the Indian government and market react?
The government's official reserve position was disclosed to Parliament on 09 March 2026, India's total national capacity for storage of crude oil and petroleum products is 74 days. The year wise import dependence on crude oil ranges from 85 per cent to 88 per cent and on LNG between 48 per cent to 50 per cent over the last five years. India's LNG infrastructure is structurally more fragile, LNG storage capacity is limited, leaving the system highly exposed during disruptions and any redirection of LNG cargoes imposes delays and incremental costs, which is why gas markets often react more sharply than oil markets to geopolitical shocks.
In 2021, The government had approved two new SPR facilities at Chandikhol and has directed OMCs to diversify crude sourcing and strengthen diplomatic engagement with OPEC, IEA and IEF. According to ICRA, a USD 10 per barrel increase in crude oil prices will increase the country's current account deficit by 0.3 per cent of the GDP. Sustained crude above USD 100 per bbl will also pressure OMC stocks (HPCL, BPCL, IOC) through under recoveries, widen the current account deficit and keep the rupee under pressure.
Is this the time for sectoral bets or stock picking in the Indian market going ahead?
The data points to stock picking within defined, data backed themes over broad sectoral ETF bets. At a Nifty PE of 21.02, sitting at the consolidated historical average of 20-21x, broad index re rating upside is limited. Future returns will be driven by earnings upgrades at the stock level, not multiple expansion across sectors. Large cap BFSI names (HDFC Bank, ICICI Bank) remain among the most attractively valued relative to their earnings quality, while upstream energy (ONGC) offers a direct crude price hedge.
Gold ETF inflows surged 106.41 per cent month on month in January 2026 to Rs 24,039.96 crore, the highest ever monthly inflow for the category and the first time gold ETF inflows surpassed equity fund inflows, confirming that sophisticated retail India is already making a measured asset allocation shift toward real assets and defensive diversification. |
