Breathe in, breathe out, breathe in… Why investors should stay calm amid war-driven market volatility

It has been a white-knuckle ride in the markets since Israel and the US began exchanging missile strikes with Iran. The conflict, however, does not strictly fall into the category of a black swan event. Markets had seen it coming as US aircraft carriers took up positions and the Trump regime made its intentions clear. Investors had pencilled in a short disruption in energy supplies from the Persian Gulf.

They are now confronted with production cuts after Iran targeted the oil and gas infrastructure of its neighbours and extended its chokehold over the Strait of Hormuz. Hostilities are approaching Trump's initial estimates of their duration, with little sign of de-escalation. Markets are yet to find their bottom, with bearish bets mounting.

Also Read: Stick to value, avoid risky bets: Gautam Shah’s playbook in a volatile market


Collective investment wisdom would advise calm under the circumstances. There is no shortage of instances to support this. Investors went through an even more gut-wrenching market correction during Covid, and those who stayed the course were subsequently rewarded.

Every crisis presents an opportunity to improve returns for the sensible investor, whether through market timing, asset rotation or systematic investment. For the vast majority of investors, the most prudent course is to continue with their SIPs. This period should add extra basis points to overall returns. Stopping or pausing SIPs would be a lost opportunity for long-term investors.

Also Read: Markets in waiting mode: Retail investors advised patience amid global tensions

The Iran crisis has a definite endpoint, although it may not be evident yet. The global energy market was in a glut before the conflict, and it will not require a long recovery once peace is restored. Energy prices are likely to remain elevated as production comes back on stream, but the current surge should ease considerably with a cessation of hostilities.

The US has indicated it is getting closer to its military objectives in Iran. Once those are met, there would be no justification for prolonging the attacks, given American public opinion on US military involvement in Iran.