Samir Arora says war risk a 1% tail event, can’t position for that; India theme strong for foreign investors

Samir Arora, founder of Helios Capital

The odds of a full-scale war between India and Pakistan remain extremely low—just about 1%—and not something investors can predict or position for, says Samir Arora, founder of Helios Capital. Instead, he argues, the bigger story is India’s resilience and long-term strength as a global investment destination, despite temporary geopolitical flare-ups.

“A war situation and big collapse is a 1% probability event which we cannot predict,” Arora said. “But for this India-Pakistan tension, the India theme is only getting stronger.” At this point, you have to believe heart-of-heart that the situation will remain contained and this will ease sooner than later, he said.

Even as tensions flared on Wednesday, Arora noted that markets are behaving predictably, with a modest decline that reflects concern but not panic going by indication from Gift Nifty. “A 1% kind of fall on a day like this is a given. Over the weekend, we’ll have to watch whether things get better or worse,” he said.

Quick reversal likely once dust settles

Even if there is a further escalation and markets fall further, Arora expects Indian equities to rebound sharply when the war stops. “The day this stops, markets will come back with a vengeance, recovering at least 80% of the loss. That is what history tells us,” he said.

Currently, the situation remains controlled. “There has been only some sort of remote targeting, and things do not seem out of control,” he said. “India’s stance is still one of controlled response and de-escalation. Even though we can clearly see India claiming victory, the key for this to end will be for Pakistan to also claim a victory—without that, this will not stop.”

Foreign flows point to a structural shift

Remarkably, despite the geopolitical noise, foreign investors were net buyers on Wednesday. “The world has been overweight US for the longest time—nearly two decades,” Arora said. “Even if the tariff issues are somewhat resolved, global investors will not go overweight U.S. again. There’s now a belief that you need to de-risk from the US.”

He noted that since the global financial crisis in 2008, around $20 trillion has flowed into U.S. equities. “Even if $5 trillion gets pulled out now, it would mean massive inflows into global markets—and India is a very strong contender to attract a meaningful share of that.”

In the past two years, the Indian market was largely propped up by local investors, while foreigners were consistent sellers. “Now, if foreign investors simply stop selling—and in fact start buying—there won’t be any stopping the market,” Arora said.