The Israel-US war against Iran, after the fallout of talks on the nuclear deal, has been grabbing headlines. The military conflict, as you may know, is not just limited to three countries but has spread across the entire Middle East.
Bahrain, Kuwait, Saudi Arabia, Qatar, UAE (Abu Dhabi and Dubai, in particular), Oman, Jordan, are some of the countries that have been hit, as Iran has threatened its most intense offensive operation against US bases.
Drones have also been intercepted at an air base in Cyprus, and very recently, a US submarine launched a torpedo strike on an Iranian navy frigate, INS Dena, in the Indian Ocean, off the southern coast of Sri Lanka.
The war has choked key shipping points, particularly the Strait of Hormuz, from where 1/5th of the world's oil flows. Currently, Iran is allowing only Chinese vessels through, and a senior commander of the Islamic Revolutionary Guard Corps (IRGC) has said it would set any ship trying to pass through on fire.
The result: Brent crude oil prices have shot up to nearly US $93 per barrel, and industries such as automobile, paint (a crude derivative), consumer electronics, and logistics, among others, are seeing the impact.
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Impact On Global Markets
A prolonged conflict would take the crude oil prices higher (possibly around US $100 per barrel), have an impact on India's oil import bill, while the Indian rupee is already weak against the greenback.
In other words, the macroeconomic landscape could get worse and have an impact on supply chains, various industries, and push up inflation.
Volatility in the equity markets has intensified with the tensions in the Middle East flaring far and wide.
The Nifty has lost nearly 3%, Nikkei 225 around 8% (due to blockade in the Strait of Hormuz), Kospi around 18%, Euro Stoxx 50 by approximately 5%, whereas the US S&P 500 has been more resilient, falling less than 1% (as of 4 March 2026).
India's Volatility Index (VIX) – also known as the fear gauge – spiked to 21 (as of 4 March 2026), its highest level in the last 10 months, indicative of more volatility ahead as the developments unfold negatively and the war protracts.
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The question is: How to Position Your Equity Portfolio?
With the equity markets having corrected sharply due to turmoil in the Middle East, valuations seem be better placed.
The premium between the Morgan Stanley Capital International (MSCI) India Index trail PE and the MSCI USA Index, for the first time in several years, is at a marginal discount.
While India continues to command a premium compared to the MSCI Emerging Market Index, the premium has shrunk compared to the 2024 peak.
The trail PE of the bellwether, Nifty 50 index, Nifty 100 (which represents largecaps), and the Nifty Smallcap 250 index, are all trading below the 5-year median. Only the Nifty Nifty Midcap 150 index trail PE is a notch above the 5-year median.
What's important is that corporate earnings of India Inc. for the past several quarters have been quite encouraging, resisting all the challenges at least through Q3FY26. The smallcaps have led the earnings, growth followed by midcaps and largecaps. It is also because of attractive valuations that Indian equity markets are seeing a sharp recovery after a slump.
That said, skewing your equity portfolio to smallcaps -- or even midcaps -- would be imprudent currently, as it would expose you to downside risk.
Benjamin Graham, the father of value investing and Warren Buffett's mentor, has famously articulated, “The essence of investment management is the management of risks, not the management of returns."
In the current times, it makes sense to follow a core & satellite approach – a strategy followed by some of the most successful equity investors around the world.
Now your core equity portfolio – be it stocks or equity mutual funds – should comprise of largecaps or blue chips. These companies with a wider economic moat, dominant market share, strong balance sheets, access to various resources and efficient management may be able to add stability to your portfolio amidst volatility.
From an investment style, the value or growth at a reasonable price (GARP) approach makes sense as opposed to pure growth style when the market momentum seems to be waning. You will be able to find value buys if you follow a bottom-up approach.
If the value buys are from midcaps and smallcaps, make sure you aren't skewing your portfolio too much to them, as they may be exposed to high volatility. And if you aren't sure how to go about picking value buys, it is best to go with some of the best Value Funds and rely on the expertise of a fund manager and his/her team.
Overall, around 65%-70% of the equity portfolio should ideally be the core portfolio with largecap orientations, value and a flexicap approach.
For a flexible investing approach, where you invest across market capitalisation dynamically, sighting the outlook and opportunities, Flexi Cap Funds are ideally choice, where you entrust the job to a professional fund manager.
The satellite portfolio, on the other hand, can be around 30%-35% of your equity portfolio and comprise selective midcaps and smallcaps offering value.
Given that smallcaps, in particular, are under-researched and less-known companies, investing in them via some of the best Small Cap Funds would be more sensible than doing it yourself.
Such a 'Core & Satellite' investment strategy can be a practical approach while India remains a bright spot for investing. If the equity market corrects further, the core portfolio would be able to limit the downside risk/add stability, and if the market ascends, the satellite portion would be able to push up the returns.
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A Multi-Asset Approach
Apart from equity for wealth creation, allocating sensibly to debt & fixed income instruments, and gold is also meaningful. This is because all asset classes do not always move in the same direction. Every asset class carries a distinctive risk-return trade-off.
At present, while equities are encountering turbulence, gold and silver are exhibiting sheen; they are rising. Debt and fixed-income instruments, meanwhile, with stable and predictable returns, are providing a necessary cushion.
For tactical asset allocation to equity, debt, and gold, a Multi-Asset Funds are a meaningful choice now for sensible wealth creation.
Remember, asset allocation is the cornerstone of successful investing. Focus on setting it right rather than wasting your time and effort in identifying the bottom, and focus on ‘time in the market'.
Your asset allocation needs to be well defined, considering your risk profile, broader investment objective, the financial goal/s you are addressing, and the time in hand to achieve those envisioned goals.
The benefit of asset allocation accrues is that:
- It reduces dependence on a single asset class
- It will help diversify the portfolio, which is the basic tenet of investing
- Minimise the risk to the investment portfolio
- Optimise risk-adjusted returns
- Provide you with the freedom of timing the market
- Ensure liquidity of the portfolio
- Potentially help you achieve the envisioned financial goals
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To Conclude…
The Indian equity market has witnessed diverse adverse events – scams, the Kargil war, the dot-com bubble burst, the global financial crisis of 2008, unrest in the Middle East in 2011 or the Arab Spring, the COVID-19 pandemic, the Russia-Ukraine war, Israel-Hamas conflict in October 2023, India-Pakistan conflict in May 2025, twelve day Israel-Iran war last year, and more.
But those who have invested sensibly following a prudent asset allocation model have been rewarded well over the long-term,
Keep in mind that the returns you make on your portfolio would depend on how you allocate to equity, debt, and gold, among other asset classes.
Amidst the ongoing tensions in the Middle East, as regards whether how should you invest -- lump sum or SIP -- in my view, it makes sense to do staggered lump sum investments or, if you are planning for certain envisioned financial goals, even better, take the SIP route, with which its inherent rupee-cost average feature shall help mitigate the risk in the interim.
Invest sensibly. Happy investing!
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