Operation Sindoor: How to navigate investment terrain amid Indo-Pak tensions

Operation Sindoor

The decisive airstrikes conducted by India against nine terrorist bases in Pakistan under ‘Operation Sindoor’ have significantly escalated geopolitical tensions between the two nations.

Contrary to initial expectations of market panic and investor anxiety, the Indian stock market responded positively, closing slightly higher by the end of the trading session. This immediate reaction underscores investor confidence in India's robust economic fundamentals, demonstrating the collective resilience and maturity of millions of market participants who chose not to react impulsively.

However, market confidence displayed initially does not guarantee immunity from future volatility, especially if the situation escalates further or remains unresolved. As someone with 27 years of Indian Army service followed by 15 years of experience in financial advising, I understand that amid geopolitical conflicts the markets rarely follow a linear path. They typically involve numerous twists and turns, leading to fluctuating market sentiments and varying degrees of economic uncertainty.

The past experience

Historically, financial markets respond predictably to Indo-Pak conflicts, albeit with short-term volatility. A study by Anand Rathi indicated that significant Indo-Pak tensions usually trigger market corrections between 5 percent and 13 percent. For instance, during the Kargil conflict in 1999, markets initially fell but rebounded within months, demonstrating resilience anchored by strong economic fundamentals. Similar patterns were evident following the Parliament attack of 2001, the 2016 surgical strikes, and the 2019 Pulwama-Balakote incidents. Each time, initial negative reactions quickly gave way to steady recovery as clarity emerged.

Strategic planning

Understanding these historical precedents can guide investors through current uncertainties. Strategic financial planning becomes essential to ensure resilience during geopolitical instability. Investors must emphasise diversification, spreading investments across various sectors and asset classes. Defensive sectors such as consumer staples, healthcare, utilities, and pharmaceuticals typically offer stability and relatively lower volatility during periods of uncertainty. By holding assets diversified across different sectors, investors can mitigate the adverse impacts specific to any single industry.

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Additionally, liquidity management becomes critical. Maintaining sufficient cash or assets that can be easily liquidated—ideally 10-20 percent of the overall portfolio—provides both security against unexpected personal financial requirements and strategic flexibility to capitalise on market opportunities arising from temporary corrections. Investors who can maintain liquidity during volatile periods are better positioned to leverage potential buying opportunities when fundamentally strong assets become undervalued due to panic selling.

It is equally important to emphasise the avoidance of panic-driven decisions. Emotional reactions to market volatility typically result in poorly timed exits, locking in losses and foregoing potential recoveries. Instead, adopting a disciplined, long-term investment perspective aligns better with historical market behaviours, where rebounds often follow short-term downturns. Investors must carefully review their asset allocations to ensure alignment with their risk tolerance and investment horizons, staying patient and disciplined even when headlines seem troubling.

Furthermore, investors should cautiously consider leverage during times of heightened uncertainty. High levels of debt or margin trading can amplify risks significantly during market downturns. Reducing leverage or maintaining low leverage positions can enhance portfolio stability, protecting investors from severe losses and forced liquidations during sudden market movements.

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Long-term focus

Long-term strategic focus also plays a crucial role. Investing in quality companies with robust financial health, sustainable business models, and low debt levels is vital. These companies typically weather geopolitical storms better than their weaker counterparts, providing steadier returns even in adverse economic environments. Investors should use such opportunities to reassess their portfolios, identify fundamentally strong businesses, and strengthen their investments in these resilient enterprises.

Drawing parallels between military operations and financial planning, preparedness, adaptability, and disciplined execution remain common key elements. Just as military units continually assess various scenarios and plan accordingly, investors should periodically conduct ‘financial drills,’ reassessing and realigning their portfolios according to evolving market conditions and personal goals. These periodic reviews and adjustments help investors remain strategically positioned, mitigating negative impacts and maximising opportunities amid market turbulence.

As we move forward through this geopolitical episode, maintaining informational discipline is also crucial. Investors should avoid impulsive decisions based on speculative or unverified news. Consuming credible, verified information and critically evaluating market news ensures better decision-making. Information discipline helps investors remain calm and rational, essential qualities during heightened market volatility.

Certain sectors present specific opportunities and challenges during periods of geopolitical instability. Sectors such as defence, cybersecurity, healthcare, and essential services may witness increased demand due to heightened security concerns and sustained essential consumer needs. Conversely, tourism, hospitality, luxury goods, and businesses heavily reliant on cross-border supply chains may experience difficulties. Investors should continually monitor these sector-specific dynamics, adapting their portfolio allocations accordingly.

Ultimately, Operation Sindoor marks a critical moment in the ongoing geopolitical narrative between India and Pakistan. While initial market reactions indicate confidence in India's economic resilience, investors should remain vigilant, disciplined, and strategically prepared for potential volatility ahead. By diversifying investments, managing liquidity prudently, avoiding panic-driven decisions, and maintaining long-term investment perspectives, investors can successfully navigate current uncertainties, safeguarding and potentially enhancing their financial well-being amid geopolitical challenges.

The writer is the CEO of Hum Fauji Initiatives, a financial planning firm.

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