Markets could see up to 10% fall on Middle East tensions, time to buy in a staggered manner: Vikas Khemani

Vikas Khemani, Founder, Carnelian Asset Management

• Markets may drop 10% due to Middle East tensions and rising oil prices
• Indian market expected to stay volatile and headline-driven
• Investors urged to focus on domestic sectors, stagger purchases

Did our AI summary help?

The markets could see a fall of 10 percent, according to Vikas Khemani of Carnelian Asset Management amid the ongoing tensions in the Middle East and as oil prices surged beyond $100. However, he added that this is the "time for money to be deployed."

“The fact that Iran is retaliating despite significant leadership losses suggests they have plans to continue,” he noted, adding that such situations typically lead to temporary uncertainty rather than lasting damage to markets.

Khemani noted that developments over the weekend suggest the conflict could persist longer than initially anticipated. He pointed to Iran's continued retaliation despite severe losses to its leadership as a sign that hostilities are unlikely to de-escalate quickly. "It's very hard to predict how long it will take," he said, acknowledging the inherent unpredictability of such situations.

On the impact to Indian markets, Khemani was clear that while short-term pressure is unavoidable, the long-term India story remains intact. He sees the primary risks as supply chain disruptions and rising oil prices, not structural damage to the economy. He estimated a downside of 5-7% in markets under current conditions, rising to as much as 10% if crude oil surges to $120 per barrel. "The Indian economy continues to chug along well," he said, adding that the domestic growth narrative has not changed.

For SIP investors, his advice was unequivocal: stay put. For direct investors with dry powder, he sees the current dip as an opportunity rather than a reason to retreat. "These are the times where money needs to be deployed," Khemani said, recommending a staggered investment approach - either time-based or index-level-based - to manage the uncertainty.

Khemani revealed that his own funds are deploying incoming capital in tranches, spreading it over a couple of weeks rather than investing all at once. "We don't play for 5%. We play for a very long time," he said, underscoring his long-term investment philosophy.

Oil remains the key transmission channel through which the conflict could affect India, given the country’s dependence on energy imports. Apart from potential supply chain disruptions and higher crude prices, Khemani believes the broader economic impact would be minimal. Over his career, he said, markets have repeatedly navigated elections, global conflicts and economic shocks while continuing to generate strong long-term returns.

He highlighted India's solid macros: "India's economy [is] very solid. our debt to GDP ratio, our banking system is good, inflation is under control, our fiscal deficit is under control, our current account deficit is under control, corporate funding is recovering, we are sitting on fiscal stimulus and monetary stimulus. So fundamentally, economy is chugging along very well."

"I don't know any period in my career when there's no risk, uncertainty around an investor's mind. Something or the other is always around, in terms of uncertainty," he said, mentioning past events like elections and other global flare-ups.

He pointed to India's track record: "India has delivered 17-18% CAGR return which is in my opinion one of the two markets in the world that have developed. So, India continues to remain a very interesting and investable opportunity."

Also Read | Asian markets slump as oil tops $100 amid Middle East tensions; Nikkei, Kospi slide

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.