There are constant disputes between different countries in the world over one issue or the other, and sometimes a war situation arises between them. Recently, the war between Russia and Ukraine has been going on for the last three-four years. There was also a war of one or two days between India and Pakistan.
If a war continues for a long time, the market stops reacting to it. If it has a very negative impact on a company or a sector and this impact continues for a long time, then that stock can definitely be affected.
But it is important to discuss the current war. This war is being waged by Israel and the United States against Iran. India’s economy is being affected by this war.
The biggest impact of this war on India has been the disruption of oil supplies. India imports 80 to 90% of its crude oil from other countries, and a significant portion of this comes from the Gulf countries. During the war, Iran has blocked, or is attempting to block, the Strait of Hormuz, a route for crude oil flow, affecting India’s crude oil supply.
In today’s article, we’ll analyze the impact of the war on India’s Nifty 50 and its impact on specific stocks. We’ll also analyze investor behavior during this period.
Immediate market reaction and sharp decline
In the first 15 days since the war began, the Nifty 50 index has fallen from around 25500 levels to around 23000, meaning it has fallen by 7 to 8%.
The situation is similar for other markets or indices around the world.
But Israel’s markets are trading near all-time highs, driven by rising share prices of defense companies as demand for their products increases in the event of war.
This downward trend will continue until crude oil supplies are disrupted, or a solution is found, or the war ends.
Impact on crude oil price
The Iran crisis has had a profound impact on crude oil prices because Iran’s blockade of the Strait of Hormuz has affected oil supplies through this route. Many countries import a significant portion of their oil needs from the Gulf.
And we all know that the increase in crude oil prices is not good for the economy of our country, due to which it is natural for the market to fall.
Inflation
The threat of inflation is not good for the stock market as it forces central banks to change their policies, due to which investors start investing in other investment options.
War and our current stock portfolio
In the current situation, if we look at the stock portfolio of any investor, there is no doubt that if an investor is in loss, he would have suffered a further loss of 10 to 15 percent.
If an investor is in profit, his profit would have reduced by 10 to 15%.
If you have sold your shares after booking profits, then it will be called your wise decision.
Avoid panic selling
Avoid panic selling. If you’re currently experiencing losses in the stock market, don’t panic and book losses. Instead, research the stocks you’re investing in and make decisions based on that. Stay invested in good companies and sell shares of bad companies when they rise slightly.
Opportunity to rebalance the portfolio
In a war-like situation, investors have a chance to balance their portfolio. Good stocks become available at cheaper prices. This provides an opportunity to average down if they are already in your portfolio, and also to enter new stocks.
Buy on Dip Opportunity
A new investor should make a list of good stocks because in such a situation good stocks are available at cheap prices and this is the right opportunity to buy them.
Long term mutual fund investors
Long-term mutual fund investors should not panic and exit their investments but should continue their investments systematically so that they continue to get mutual fund units at cheaper prices and can take advantage of the market turn favorably.
Diversified Portfolio –
A portfolio that includes companies from each sector, such as defense, IT, information technology, banking, or other sectors. Debt, gold, equity ETFs, and mutual funds. Such portfolios are easier to rebalance from time to time.
1-During wartime, the price of gold either rises significantly or remains stable. Therefore, if we already have investments in gold, it can protect our overall portfolio from significant losses during a war crisis. We should invest through gold mutual funds or gold ETFs.
2-Defense companies can sometimes perform well during wartime.
3- Debt mutual funds are less affected by stock market declines, so they protect our overall portfolio from significant losses.
Test of patient ,fear and discipline
Although the market tests the discipline of investors and traders every day, but in a situation like war, it is natural for any investor’s patience, discipline, fear etc. to be tested. The one who passes this test and comes ahead is called a good and true investor and the market rewards only him.
Conclusion
This means that investor should not create panic at this time because the market has seen many ups and downs in wars before and every time the market has improved after the fall, but this does not mean that all the shares will give you profits, many shares are not able to rise during the fall in the market, hence the whole game depends on balancing the portfolio, asset allocation and your patience.