As of late Tuesday, GIFT Nifty indicated ~807 points lower (~3%), suggesting a weak opening for
Indian equities after the Holi holiday while market opened 2% lower on Wednesday. The US
markets also crashed with Dow, S&P 500 and Nasdaq each falling over 2%. Asian markets also fell
with Kospi crashing 7.8%
Geopolitical events typically trigger sharp but temporary volatility. History provides useful
perspective
What Analysts say
- Top research houses say that a 10% increase in oil prices can increase current account deficit
by 0.4% while the inflation pass through could be limited - Impact of closure of Strait of Hormuz can increase freight cost by 3%-5% though volumes are
unlikely to be affected based on past experiences - Also, the current assessment is that US doesn’t want a protracted war and is likely to
terminate it in a matter of 4-6 weeks.
Market Reaction to Major Geopolitical Conflicts
Historical pattern:
- Geopolitical escalations have typically triggered an immediate equity correction in the
range of 2–10%, accompanied by a spike in volatility - Once the extent of the conflict becomes clearer and systemic risks are reassessed, markets
have generally stabilised and recovered over the following 3-4 months. - Historical data across multiple conflicts shows that equity markets tend to discount
uncertainty rapidly, with medium-term performance ultimately driven more by earnings,
liquidity, and macro fundamentals than by the conflict itself - Such corrections have historically created attractive entry points for disciplined investors
with a long-term horizon
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