Navigating Geopolitical Tensions: Lessons for Investors

Geopolitical conflicts often rattle investors, raising fears of sharp portfolio declines - a concern clearly visible amid the latest India-Pakistan tensions. Yet a broader look at history - from India’s past standoffs to major global wars - paints a reassuring picture. While wars can trigger short-term volatility, stock markets have repeatedly demonstrated resilience. They have rewarded long-term investors who avoid impulsive reactions and instead ground their strategies in empirical data and historical market resilience.

A closer look at past India-Pakistan episodes reveals a familiar pattern: initial market corrections - usually between 2-10 per cent - followed by strong recoveries. For instance, during the Pulwama attack in 2019, Indian equity indices fell by over 1.8 per cent between February 14 and March 1, only to regain ground soon after. Similarly, following the Uri attack and subsequent surgical strikes by Indian forces in 2016, markets declined by more than 2 per cent between September 19 and 26, before recovering by October 4.

Importantly, these market reactions occurred against a backdrop where conflicts remain geographically contained and relatively brief. In case the war extends, there is a possibility that the market may fall even more. For example, the ongoing Russia-Ukraine war which has already completed three years. Russia’s frontline indices plunged by 52 per cent within the first 10 months of the conflict. Nevertheless, the Russian market has recovered and has since risen 40 per cent above pre-war levels. An analysis of 23 major global conflicts shows that the average market decline during such periods is around seven per cent, with a median decline of just 3 per cent. Crucially, markets have historically rebounded quickly once tensions eased, underscoring that geopolitical crises tend to be temporary roadblocks rather than lasting setbacks.

Market reactions during conflicts often include a flight to safety - where investors move from equities to gold, bonds, or the US dollar - alongside sectoral shifts. Defence and infrastructure stocks may see gains, while tourism, aviation, and trade-sensitive sectors often come under pressure. Although every geopolitical event has its unique elements, markets have repeatedly weathered storms ranging from the 9/11 attacks to the Russia-Ukraine war. India’s growth story, driven by domestic consumption, digital innovation, and infrastructure investment, remains robust, supported by projected GDP growth of 6-7 per cent over the next decade. While war is deeply unsettling, history shows that patient investors who stay focused on fundamentals rather than panic-driven headlines tend to emerge stronger. Geopolitical events, though disruptive, are merely temporary detours along the long-term upward journey of stock markets.

In line with our tradition of recognising the key pillars of Indian corporates, this special edition of DSIJ shines a spotlight on the performance of India’s public sector undertakings (PSUs). Acknowledging their vital role in nation-building and corporate leadership, we have honoured several PSUs across different categories based on their achievements. Through this special issue, we aim to equip our valued retail investors with deeper insights into the opportunities and challenges of investing in PSUs. After all, successful investing requires not just facts, but the right perspective to interpret them.

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RAJESH V PADODE
Managing Director & Editor