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The equity markets saw some volatility through the day due to concerns among investors regarding the increase in tensions between India and Pakistan following Indian army’s ‘Operation Sindoor’ on Pakistan’s terrorist camps last night.
In its press release, Kotak MF has assured investors that the impact of such conflicts on the equity markets has been short-lived in the past. It has cited the Nifty50 index returns during the Uri surgical strike in September 2016 and Balakot Strike in February 2019 showing that although markets saw volatility in the period between the attack and the subsequent strike, its impact on the one-year index returns were minimal. The index delivered 11.3% returns in the one year after the Uri surgical strike and 8.9% returns after the Balakot strike.
Economic impact of past Indo-Pak wars on the market
The fund house has shared data showing that during the last Indo-Pak war, the 1999 Kargil War, the equity markets saw an 8% correction in the one-month leading to the war. However, the markets were up by about 37% during the over two-month period of the war and grew by 29.4% in the one-year following the war.
The wars before 1999 including the 1962 Sino-Indian war, 1965 and 1971 India-Pakistan wars also had a limited impact on macroeconomic parameters like GDP growth but led to an increase in inflation and fiscal deficit. The fund house said that despite the short-term volatility and even a correction in the event of a full-scale war, macro-economic factors and corporate earnings drive the stock market performance in the long-term.
What should investors do?
The fund house recommends a staggered investment approach and suggests the lump-sum investors to not sell their investments in panic and instead, consider STPs. For existing SIP investors, the fund house has advised to not stop their existing SIPs and instead, consider a top-up, if possible.
In general, the fund house has asked investors to stay invested and avoid any knee-jerk reaction to fulfill their goal of long-term wealth creation.
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