Is Wartime A Good Time to Invest?

'Even now, investors are not bothered about the war but are more concerned whether it will remain localised or not.'
'In case things are contained, markets can stage a bounce back in the next few days.'

Adversities such as war may be a good time for long-term investors with risk appetite to buy their favourite stocks cheaper, says an analyst.

However, the investors need to evaluate whether the geopolitical developments are likely to stay localised, or can escalate.

Markets typically react with heightened volatility on expectations of any negative event /uncertainty, and even when the event unfolds, data shows.

However, soon when there is a realisation that the situation might get diffused, the rally in equity markets gets sharper.

Geopolitical risks are no different. Historically, equity markets have generally overreacted amid looming geopolitical risks but found their feet soon.

Iraq's invasion of Kuwait in 1990 is a case in point. It triggered a sharp correction in the markets and oil prices had doubled. Four months later, equities markets were back to peak level.

Back home, the Kargil confrontation between India and Pakistan also saw a sharp correction in the markets in mid-1999. However, markets rallied sharply as realisation dawned that it would be a short-lasting conflict.

In the last few trading sessions, global equity markets, including in India, have borne the brunt of an escalation in geopolitical tensions in West Asia, triggering a 5 per cent rise in Brent crude oil prices to around $75 a barrel.

"Events such as a war do present a buying opportunity for long-term investors. One needs to evaluate if the latest developments will be short-lived or will the situation get worse," said Ambareesh Baliga, an independent market expert.

"Even with the Israel-Palestine conflict, the markets had dropped sharply initially, but bounced back quickly as they realised that the developments will remain localised," added Baliga.

"Even now, investors are not bothered about the war but are more concerned whether it will remain localised or not. In case things are contained, markets can stage a bounce back in the next few days," Baliga said.

The next few weeks can be crucial for the markets as they look forward to the outcome of the state elections in Haryana and Jammu and Kashmir, coupled with the September 2024 (Q2FY25) earnings season, and monetary policy of the Reserve Bank of India.

At the global level, the outcome of the US presidential polls will be a key monitorable, besides the crude oil price trajectory.

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Feature Presentation: Ashish Narsale/Rediff.com