Middle East tensions shake markets: Should investors hit 'BUY' or sit tight? Experts decode

Rising tensions in the Middle East after the US and Israel military actions in Iran have created uncertainty in global and Indian markets.

Analysts said the initial shock has been absorbed, and market reaction is muted. Investors are advised to remain cautious while watching for opportunities.

Market Reaction Limited

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Gurmeet Chaddha, Managing Partner and Chief Investment Officer at Complete Circle Wealth, said the market’s initial response was sharp but limited. “Oil prices have not spiked as much as feared. The expected USD 15 rise did not happen. Currency movements are also moderate,” he said.

Chaddha said short-term capital flows and commodity volatility, especially in energy, are key for market movement. He noted that India’s economic fundamentals remain strong. “Domestic indicators like auto sales and earnings are healthy. February manufacturing PMI was 57.5 and GDP growth reached 7.8 per cent. Manufacturing growth was 13.5 per cent,” he said.

He added that investors should monitor volatility in oil, currencies, and energy-linked assets but remain cautiously optimistic. “The market reaction is energy-driven and limited to around 1.5 per cent. This is not a systemic shock for the Indian economy.”

Geopolitical Risk

Experts said the current military operations are unlikely to escalate into a full-scale war. “The leadership chain in Iran has been impacted. Without external support, the probability of a prolonged war is lower than in the Ukraine case,” Chaddha said.

He said India is not directly involved. While the regional conflict may continue for a short period, its direct impact on domestic markets is expected to remain contained.

Opportunities in Defence and Select Sectors

Chaddha said certain sectors could benefit from the developments. “Defence stocks are likely to gain. India’s position as a reliable defence supplier could bring orders in air defence, missile systems, and advanced warfare technologies,” he said.

He also suggested monitoring upstream oil players for tactical opportunities, as oil price volatility can temporarily boost refining margins. Defensive sectors like pharma remain less affected by geopolitical events.

Small Caps: Buying Opportunity

Feroze Aziz, Joint CEO at Anand Rathi Wealth, said current market conditions offer selective buying opportunities, especially in small-cap stocks. “The market reaction has been muted. A 1 per cent daily fall is normal. Large-cap stocks have already corrected, leaving limited downside,” he said.

Aziz noted that short-term investors have reduced holdings in small caps. “Ownership by short-term foreign investors in top 250 small-cap stocks has fallen significantly. Bottom formation is near, and small-cap stocks could recover as panic selling is minimal,” he added.

SIPs and Investment Strategy

Nilesh Shah, MD at Kotak Mahindra AMC, said investors should continue regular SIPs but avoid aggressive top-ups. “Valuations are not cheap enough for SIP top-ups. Continue existing SIPs to benefit from market volatility,” he said.

Shah added that oil price stability and the safety of Indian workers in the Middle East are crucial for market stability. India imports a large portion of crude from the Hormuz Strait, and more than 9 million Indians work in the region, sending remittances back home.

Oil and Commodities

Experts said crude prices remained stable. “Oil opened near USD 81 but fell to USD 77, showing limited supply disruption. OPEC countries like Saudi Arabia and UAE have committed to compensating for any shortfall,” Shah said.

Precious metals like gold may see moderate support, but large price spikes are unlikely if oil supply remains stable. Investors could hold some exposure to gold to manage risk.

Market Outlook

Chaddha said the worst may be over in the short term. “The market is watching capital flows, oil, and commodity prices. Initial panic is already reflected,” he said.

Aziz said long-term opportunities exist in defence, banking, and consumption sectors. Small caps with strong fundamentals could deliver attractive returns over 3-5 years. “Post-uncertainty, defence could outperform Nifty by 3-4 per cent,” he added.

Shah noted the conflict is likely to remain limited to air strikes and drones. Ground operations are difficult due to geography. “Probability of escalation is low. Short-term impact on oil supply and prices will be contained,” he said.

Investment Opportunities Amid Volatility

Samir Arora, founder and fund manager at Helios Capital, said long-only investors with some cash should remain patient. “Markets tend to recover. Key is clarity on strategy,” he said.

Arora said investors should keep a small cash reserve and avoid panic reactions. Retail investors should continue SIPs and maintain a long-term perspective. Helios Capital funds have posted strong returns despite volatility.

“Investors should evaluate performance over one to two years rather than focusing on short-term fluctuations. Patience and discipline remain critical for success,” he said.

Arora added that consistent long-term strategies outperform reactive approaches. “Over time, stock markets and mutual funds deliver returns even during geopolitical tension or market corrections,” he said.

Stock Market Today

Stock markets ended Monday sharply lower, with both Sensex and Nifty falling over 1.2 per cent as global geopolitical tensions spooked investors.As a result, BSE-listed companies lost Rs 6,53,526 crore in market capitalisation during the session.