Fisdom Weekly Update (Issue #21): Geopolitical tensions and your portfolio

“Be fearful when others are greedy & greedy when others are fearful” -Warren Buffett

Amidst rising military escalations between India & Pakistan, it is only natural for Indian investors to worry. But, a closer look at how the Indian markets reacted in similar situations should lend a better perspective to today.

As evident by the above graph, markets have reacted negatively but for a brief period. Looking at these periods from a different perspective, one would realise that investors who held tight or perhaps purchased more during the slump emerged as the biggest winners in only a year.

But, what about the coinciding elections? Does it add fuel to the fire?

‘Elections’ are often misquoted as a major investor concern. However, the real fear is always about a change in the policy along with the government. But regulatory risks continue to exist, irrespective of the political party in power.

Think of it this way, businesses do not stop functioning post-elections, the general public do not stop demanding goods & services; then why should the value of a company deteriorate?

Sure, there will be a temporary adjustment but in the long term, equities reflect the real value of a company.

But, is anything working in favour of the Indian economy?

While most headlines focus on a few economic concerns among the lot, there is merit in looking at a few key indicators that bear positivity for the Indian economy:

• Crude oil prices dipped from ~$82/bbl in Sept’18 to ~$60/bbl in Jan’19

 India is a major importer of crude oil. Such a dip in prices is expected to improve the economy’s financial        position.

• Rupee become stronger from ~INR.74/$ in Sept’18 to ~INR.71/$ in Jan’19

Even as geopolitical uncertainties loom large; the economy is resilient enough to support the currency

• Manufacturing PMI at ~54.3 in Feb’19 – continues an upward trend

The Manufacturing Purchase Managers’ Index reflects a robust & expansionary trend in India’s manufacturing sector which will further improve the employment & industrial output status.

• Headline inflation moderated to an 18-month low of 2.05% in Jan’19

The Indian economy seems to be gaining control of its biggest concerns of the last fiscal year– growing inflation.

Final words- events happen – some predictable, some not-so-predictable. But, the best way to mitigate such risks is by staying put. When one remains invested or perhaps invests more during general panic, that’s when the investment gets an opportunity to ride the recovery.

Here’s how the market moved amid rising geopolitical tensions.

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If you have any concern, please write to us at ask@fisdom.com or call at 080 48039999, we would be happy to answer your query.

Thanks,
Nirav (Head of Research)
Fisdom