The war in West Asia shows no signs of easing. Instead, it has expanded and affected several countries across the Middle East, including Bahrain, Kuwait, Saudi Arabia, Qatar, the UAE — particularly Abu Dhabi and Dubai — Oman, Jordan, Lebanon and Iraq.
Iran has threatened Gulf ports and said it will target oil and gas infrastructure across the region if Tehran's energy facilities come under attack during the conflict. Iran has intensified its offensive against the US and Israel after both countries carried out coordinated airstrikes on Iran under operations “Roaring Lion” by Israel and “Epic Fury” by the US, targeting nuclear sites, military facilities and leadership.
The US also targeted Kharg Island, located 25 km off Iran's coast and about 483 km northwest of the Strait of Hormuz — a hub that manages about 90% of Iran's oil exports. The strike followed Iran's move to block the Strait of Hormuz, through which about one-fifth of the world's oil passes. Iran's Islamic Revolutionary Guard Corps, the paramilitary force that reports directly to the supreme leader, has also attacked ships attempting to cross the strait.
Beyond the Middle East, Iran has struck Azerbaijan and Cyprus for hosting US military assets. The developments are not far from India's coast. On March 4, 2026, a US submarine torpedoed an Iranian navy frigate, INS Dena, in the Indian Ocean off Sri Lanka's southern coast, about 100 nautical miles south of India, triggering a security debate.
The ramifications…
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Surge In Energy Prices
The conflict has pushed Brent crude oil above US $100 per barrel. Iran has warned that oil could rise to US $200 per barrel.
For India, the development is negative as the country imports more than 88% of its oil consumption. About 30–40% of these supplies move through the Strait of Hormuz.
Russian crude oil supplies have resumed amid disruptions in the Middle East supply chain. However, these supplies now come at a premium of US $4–5 per barrel above Brent crude rather than at a discount.
Industries such as automobiles, paint — a crude derivative — consumer electronics and logistics are seeing pressure due to the rise in crude oil prices.
LPG remains a weak link in India's energy chain. India imports about 60% of its LPG consumption, and about 90% of these imports usually pass through the Strait of Hormuz. LPG cylinder prices have already increased for domestic and commercial users. The increase in commercial LPG prices may raise costs for industries that rely on it.
LNG prices have also risen to about $25.40 per MMBtu. LNG is widely used for electricity generation, industrial heating, manufacturing — including plastics and fertilisers — and as fuel for heavy-duty ships and trucks. Higher LNG prices may increase input and logistics costs.
Weak Indian Rupee
The Indian rupee has weakened against the US dollar despite intervention by the Reserve Bank of India. In the two weeks since the war began in West Asia, the rupee has depreciated 7.1%, with the fall accelerating after the Strait of Hormuz closed in the first week of March 2026.
Since the start of calendar year 2026, the rupee has declined about 8.6%. The fall may increase India's import bill and widen the current account deficit.
FII Outflows
Foreign institutional investors have withdrawn about US $3 billion from Indian equities in March, seeking safe assets such as the US dollar and gold. Domestic institutional investors have bought on declines, but their purchases have not prevented further weakness in equities.
Equity Markets Volatility Has Intensified, and Wealth Eroded
India's Volatility Index, or VIX — often referred to as the fear gauge — rose to nearly 23 as of March 13, 2026, the highest level in 10 months.
The rise reflects investor caution amid the war in West Asia and geopolitical tensions elsewhere.
The Nifty 50 Index, which tracks frontline stocks, has fallen about 8% since the conflict began. The Nifty 100 Index, which represents large-cap companies, has also declined by a similar magnitude as of March 13, 2026.
The spike indicates that investors are fearful amidst the current war in West Asia and geopolitical tensions in other parts of the world.
The Nifty Smallcap 250 and Nifty Midcap 150 indices have fallen 7.4% and 6.4%, respectively, in the two weeks since the war began.
More than Rs 34 lakh crore of investor wealth has been erased in two weeks. On a year-to-date basis, about Rs 45–46 lakh crore in market value has been wiped out in Indian equities as of mid-March 2026, marking the steepest decline in 15 years.
Small-cap and mid-cap stocks — often referred to as SMIDs — have seen sharper declines. Inox Wind, IIFL Finance, Godfrey Phillips India, Jyoti CNC Automation, BEML, HPCL, Tata Communications, Exide Industries, M&M Financial Services, SRF and Cochin Shipyard are among companies that have declined in double digits on a year-to-date basis.
SMIDs typically show greater sensitivity to volatility. Small-cap and mid-cap stocks also traded at peak valuations in 2025. The Reserve Bank of India flagged these concerns in its Financial Stability Report in 2025.
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Does It Make Sense to Invest in SMIDs Now
The correction in Indian equities has lowered valuations and created some margin for investment.
The premium between the Morgan Stanley Capital International India Index trailing PE and the MSCI USA Index has moved to a slight discount for the first time in several years.
India still trades at a premium to the MSCI Emerging Markets Index, but the gap has narrowed compared with the peak seen in 2024.
Mid-cap and small-cap indices have corrected about 20–30% from their peaks.
The recent decline has reduced valuation pressure in the small-cap and mid-cap segment after the sell-off that followed the start of the West Asia war.
Across market capitalisation segments, the current price-to-equity ratio and price-to-book ratios are now below the five-year average. Mid-caps, however, still show elevated valuations as the difference between current PE and PB levels and their five-year median remains limited. Investors may consider only select mid-caps where valuations align with earnings trends.
Small-caps appear cheaper but cannot yet be considered inexpensive. Some companies still trade at a premium relative to earnings. Geopolitical tensions and macroeconomic developments have reduced excess valuations in the segment to some extent. However, the ongoing correction may continue and could reduce valuations further.
Investors may need to remain selective in small-caps and mid-caps and adopt a bottom-up approach. The focus should remain on company fundamentals rather than short-term valuation changes. Investors may avoid stocks that have declined sharply but lack earnings support or face liquidity risks. Small-caps may remain vulnerable if equity markets fall further.
How to Position Your Equity Portfolio Now
Investors may consider a core and satellite approach — an investment strategy widely used by equity investors.
About 65–70% of the equity portfolio may remain allocated to large-cap stocks, along with value and flexi-cap strategies.
The satellite allocation can account for about 30–35% of the portfolio and may include selected mid-cap and small-cap stocks. Small-cap companies often receive less analyst coverage and carry higher risk within the risk-return spectrum. Investors may consider investing through small-cap funds to achieve diversification rather than selecting stocks individually.
Under the core and satellite approach, the core portfolio may help limit downside risk if markets decline further. If markets recover, the satellite allocation may support overall returns. For investment timing, staggered lump sum investments or systematic investment plans may help manage short-term volatility and align investments with long-term financial goals.
A disciplined investment approach remains important instead of investing without a defined strategy.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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