Learn With ETMarkets: Geopolitics vs. Portfolio - 7 smart investing moves in volatile times

Time of India

14-06-2025

Geopolitical tensions have increasingly influenced financial markets in recent years. From the prolonged conflict between Russia and Ukraine to the evolving trade dynamics between the United States and China, global developments have become a key concern for investors.
Even domestically, events such as India's
Operation Sindoor
and trade-related tensions with neighbouring countries have remained in focus.
These events prompt important questions: How will markets react? What are the potential implications for portfolios? And most importantly, how can investors navigate such uncertain environments?
Why Geopolitics Matters to Investors
In the current global landscape, geopolitical events are no longer peripheral — they directly influence market sentiment and economic fundamentals. Conflicts, elections, diplomatic standoffs, and sanctions impact global supply chains, commodity prices, interest rates, inflation, and cross-border capital flows.
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For example, the Russia–Ukraine conflict disrupted global energy supply chains, while US–China tensions have affected trade volumes and investment flows. For investors, understanding these linkages is crucial to managing risk and identifying opportunities.
Market Response to Geopolitical Events
While such events often trigger short-term volatility, historical trends suggest that equity markets, particularly in India, have shown resilience over the long term.
Key Examples:
India–Pakistan Standoff (2001–2002): The
Sensex
declined by nearly 3% during the standoff but recovered over the following year.
Mumbai Attacks
(2008): Markets dipped nearly 2% immediately but rebounded significantly, gaining ~92% over the next year.
Surgical Strike (2016):
The Sensex rose by ~26%, reflecting investor confidence.
Pulwama Attack (2019):
The market remained largely stable and closed the year with a ~15% gain.
India–China Clash (2020):
The Sensex dipped briefly but surged ~67% within 12 months.
Russia–Ukraine War:
Initial volatility gave way to recovery, with the Sensex delivering a cumulative return of ~51% as of June 6, 2025.
US–China Trade War:
Despite short-term fluctuations, markets posted a ~7% gain since the initial tariff announcements.
COVID-19 Pandemic:
After a sharp initial decline (~23%), the Sensex rebounded by ~100% within a year.
While market corrections during such events are common, long-term investors have often been rewarded for staying invested.
Strategies to Position Portfolios Amid Global Uncertainty
While geopolitical events are beyond an investor's control, the ability to respond with a disciplined approach can significantly mitigate potential downside risks.
1. Maintain a Long-Term Perspective
Investors are advised not to respond to geopolitical developments with impulsive decisions. Historically, the Nifty 50 has not posted negative returns over any rolling 10-year period since 1999, with average annualised returns of approximately 14.1%. Time in the market continues to outweigh timing the market.
2. Review and Realign Asset Allocation
An investor's asset allocation should reflect their age, financial goals, and risk appetite.
● Younger investors (20s–40s) may consider higher equity exposure (80–100%).
● Near or post-retirement investors may benefit from increased allocations to fixed income or low-volatility instruments to preserve capital.
An important self-check: Would a 10–15% correction impact your financial stability? If yes, a rebalancing may be warranted.
3. Diversify Across Asset Classes and Geographies
Diversification remains the most effective tool for risk management. Investors should not only diversify across asset classes (equity, debt, gold) but also consider geographic exposure.
In the past year, for instance, the Hang Seng Index delivered ~29% returns — outpacing both the Nifty (~10%) and Dow Jones (~9%). Despite ongoing global tensions, China's market has performed strongly on a year-to-date basis, reiterating the case for geographic diversification.
4. Incorporate Safe-Haven Assets
In periods of heightened uncertainty, assets like gold, silver, and government bonds tend to perform relatively better.
As of 2025 YTD:
● Gold has delivered ~26% returns
● Silver has returned ~23%
● Nifty 50, in comparison, has returned ~3%
Government securities also serve as a hedge against volatility, especially for risk-averse investors.
5. Maintain SIP Discipline
Systematic Investment Plans (SIPs) allow investors to average costs over time and reduce the impact of market volatility. Continuity in SIPs during market corrections has historically proven beneficial, as it encourages disciplined investing and long-term wealth creation.
6. Maintain Liquidity for Contingencies
A reserve corpus equivalent to 3–6 months of essential expenses ensures that investors do not have to prematurely exit market positions during crises. Moreover, liquidity positions investors to take advantage of attractive valuations during market corrections.
7. Consider Defensive Sectors
In phases of heightened risk, investors may consider shifting partial exposure toward low-beta, cash-rich, and resilient sectors such as FMCG, Healthcare, and
Utilities
. These sectors often provide stability and steady earnings during volatile phases.
Wrapping Up
While geopolitical events do introduce uncertainty, history has consistently demonstrated the Indian equity market's resilience. Whether during the pandemic, border tensions, or global trade conflicts, markets have eventually rebounded, rewarding investors who stayed the course.
Delaying action until after a crisis unfolds often results in missed opportunities, as markets tend to price in developments rapidly. It is, therefore, imperative to adopt a proactive — not reactive — approach.
Though geopolitical shocks cannot be anticipated or controlled, investors can mitigate their impact through prudent asset allocation, diversification, and long-term commitment to financial goals. Market volatility is temporary — but the benefits of strategic discipline are enduring.
(The author is Vice President of Research, TejiMandi)
The article is for information purposes only. This is not investment advice.
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Disclaimer
: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)