The Indian government’s bold military response—Operation Sindoor—in response to the Pahalgam attack on April 22 has created understandable jitters in financial markets. However, history offers a reassuring narrative for long-term investors, especially mutual fund participants.
The immediate impact of any political upheaval is seen instantly in the stock markets. However, mutual funds are relatively safer investments since they invest in a range of stocks, sectors and asset classes, thus diversifying the risk. So, investors of mutual funds are generally in a sweet spot vis-à-vis stock investors.
Here’s a data-backed breakdown of how markets have behaved during past conflicts and how you should approach your mutual fund investments now.
Market reactions to past conflicts
Historically, India’s capital markets have shown short-term volatility during military conflicts but have bounced back strongly over time. Below are key examples:
Nifty 50 returns around past conflicts
|
Event |
1 month before |
During conflict |
1 year after |
|---|---|---|---|
|
Kargil War (1999) |
-8.3% |
+36.6% |
+29.4% |
|
Uri Surgical Strike (2016) |
-0.3% |
+0.4% |
+11.3% |
|
Balakot Airstrike (2019) |
+0.8% |
-0.4% |
+8.9% |
Source: MFI Explorer (Compiled by Kotak Mutual Fund)
Even in the case of full-blown wars like Kargil, market corrections were temporary. Within a year, investors were well-compensated for staying invested.
Macroeconomic impact of past wars
Although stock markets recovered, macroeconomic indicators did reflect some pressure—mainly inflation and fiscal deficit.
Impact of conflicts on economy
|
War |
GDP (%) |
WPI inflation (%) |
Fiscal deficit (%) |
|---|---|---|---|
|
Kargil War (1999) |
6.18 → 8.85 |
5.90 → 3.30 |
9.10 → 9.20 |
|
1962 Sino-Indian War |
3.72 → 2.93 |
0.24 → 3.80 |
2.93 → 3.99 |
|
1965 Indo-Pak War |
5.99 → 7.45 |
6.17 → 10.98 |
4.86 → 5.72 |
|
1971 Bangladesh War |
3.30 → 1.19 |
5.54 → 5.60 |
2.38 → 6.82 |
Source: IMF, RBI, Sunidhi Research (Compiled by Kotak Mutual Fund)
Inflation tends to spike and fiscal discipline gets challenged in prolonged conflicts, but India’s GDP has demonstrated resilience across these timelines.
What should mutual fund investors do now?
In the wake of Operation Sindoor, investors might feel a natural urge to react swiftly to protect their portfolios. However, data and market behavior suggest that a calm, disciplined approach often outperforms impulsive decision-making.
“SIP works on rupee cost averaging method. It means over a long period of time, your cost of purchase becomes average due to the bear and bull market and your investments become less volatile in comparison to lumpsum investments. Volatility is the part and parcel of equity investments. Investors should stay put in such volatility rather than converting their notional loss into permanent loss. Therefore, you should continue your SIPs and focus on long term wealth creation,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.
Do’s
1. Continue SIPs: Systematic Investment Plans (SIPs) are built to withstand volatility. They capitalize on rupee-cost averaging—meaning you buy more units when prices fall and fewer when they rise. This smoothens the cost over time and ensures you don’t try to time the market, which rarely works.
Example: An investor who continued their SIP through the 2016 Uri Strike and 2019 Balakot Airstrike periods saw handsome gains a year later. Market dips turned into opportunities for wealth accumulation.
2. Top-up SIPs: If you have surplus cash and a long-term horizon (5–10+ years), consider increasing your SIP amounts temporarily. This is akin to buying quality assets at a discount, especially in fundamentally strong equity funds.
3. Staggered lumpsum investments: If you’ve recently received a bonus, sale proceeds, or idle funds, avoid putting it all into the market at once. Break it into 3–6 tranches over the next few months. This strategy cushions you from near-term volatility and helps ride the market’s recovery phases.
4. Rebalance if needed (not panic sell): If your asset allocation has skewed heavily toward equity or debt due to market movements, consider rebalancing. But do it in a planned manner, ideally under a financial advisor’s guidance—not as a knee-jerk reaction.
Don’ts
1. Avoid panic selling: Emotional selling during sharp market corrections often results in crystallizing losses. Many investors who exited during COVID-19’s market crash in March 2020 missed the V-shaped recovery that followed just months later.
2. Don’t stop SIPs: Pausing or stopping SIPs during turbulence undermines the whole purpose of long-term investing. Even skipping a few SIPs can lead to a substantial difference in final corpus due to missed units at lower NAVs.
3. Don’t overcorrect portfolio allocation based on headlines: Geopolitical tensions, while serious, typically create temporary distortions. Avoid completely shifting to debt or gold just based on fear. Stick to your original investment strategy unless your financial goals have changed.
Disclaimer: Mutual fund investments are subject to market risks. Consult your financial advisor before making decisions.
