The West Asia war is escalating, and there is no ceasefire in sight yet. The Brent crude oil price is over US$ 100 per barrel, with the Strait of Hormuz functionally restricted and effectively closed, and US President Donald Trump continuing his intense military actions against Iran. He has warned of hitting Iran's power plant and bridges, if the Strait of Hormuz remains closed, and if that happens, international oil prices could move further up.
In such a scenario, for India, which predominantly imports oil and gas for its domestic consumption, this is a high risk. A depreciated Indian rupee (INR) against the US dollar (USD) is a double whammy. If the war continues, the RBI may not be able to stop the INR from surpassing 100 against the greenback.
This interpolates the risk of imported inflation. With commercial LPG prices being increased, higher aviation turbine fuel costs, a surge in freight costs, and supply chain disruptions, several industries are already witnessing rising input costs. Besides, higher fertiliser costs (and unseasonal rain and hailstorms in many parts of India) are also pushing up food prices. In short, there is a risk to the inflation trajectory.
The question is, will inflation pose a risk to your portfolio? The straight answer to that is yes.
This is because ultimately, real returns -also known as inflation-adjusted returns – not just nominal returns, matter for your portfolio. Inflation, after all, erodes the purchasing power of your money. So then, how does one inflation-proof the investment portfolio?
ALSO READ: Iran War Ceasefire: Market Expert Ajay Bagga Suggests 'SIPs Safest Play'
Here are five things you can do:
1. Ensure You Have Adequate Exposure To Gold
Historically, the precious yellow metal has proved its trait of being a safe haven and a store of value in times of geopolitical tensions and macroeconomic uncertainty.
Yes, gold prices have been rather volatile of late, but on a year-to-date basis, gold (MCX spot price) is still up 11.8% (as of 6 April 2026), continuing to exhibit sheen.
The last decade has seen a massive structural re-rating of gold in India, primarily fuelled by Rupee depreciation and global instability. Gold has generated a compounded annualised growth rate of approximately 18.1% due to a variety of factors – the COVID-19 pandemic, geopolitical risk premiums (US-Israel-Iran war, Russia-Ukraine war), US tariffs and trade during the Trump 2.0 regime, central bank buying and interest rate cuts, among others.
In challenging times such as the West Asia war and its ramifications on the macroeconomy, gold is expected to play its role as an effective portfolio diversifier. Hence, it would be sensible to have around 10-15% allocation to gold (preferably via gold ETFs or gold savings funds, the smart ways of investing in gold) with a long-term view.
ALSO READ: Gold Loan Rules: How Falling Gold Prices Can Reduce Loan Eligibility
2. Critical Commodities
Apart from gold, certain critical commodities may also be considered, provided you have a very high appetite. Mind you, commodities are extremely volatile and a double-edged sword, so you need to make a prudent choice.
Ideally, consider trading in those commodities that are essential in everyday life, whose prices are expected to rise – for example, oil, industrial metals (such as copper, silver, aluminium, etc.) agriculture commodities.
Note that commodities are among the few assets currently showing a negative correlation with equities. That said, you need to prudently assess the demand and supply conditions of every commodity under consideration for it to have a positive effect on your portfolio.
ALSO READ: Quant Funds Reality Check: Have Their Complex Algorithms Built Wealth For You?
3. Ensure Tactical Asset Allocation
Just because equities are very volatile, it would be a mistake to avoid them or disinvest and invest everything in bank fixed deposits and/or small savings schemes. As you know, interest rates on deposits, particularly, have come down. Plus, the interest is taxable in most cases (except for PPF and SSY). Given that, you will not be able to earn effective real returns.
In fact, in times when markets have corrected significantly from their all-time highs, you need to be approaching offer value, i.e., whose intrinsic worth is higher than the current trading price. But be selective. It would be wise to consider mature, well-established companies with strong current free cash flows rather than small, early-stage companies. Exposure to Growth or momentum stocks may be avoided or trimmed if future returns are going to be jeopardised by rising inflation.
If you are not good at stock picking, it is better to invest in appropriate equity mutual funds. Your mutual fund portfolio should ideally comprise core and satellite holdings. The core portfolio may comprise the best large cap fund, value fund and a flexi-cap fund. The satellite portfolio, on the other hand, can comprise some of the best mid-cap funds and an aggressive hybrid fund.
Such a 'Core & Satellite' investment strategy shall potentially prove to be an all-weather approach. The core portfolio would limit downside risk/add stability, and if the market ascends, the satellite portion would push returns higher, potentially earning your efficient real returns over an investment horizon of 7-8 years.
Apart from these, you could also consider holding a suitable portion in multi-asset allocation funds for their tactical allocation to equity, debt, gold, silver, as well as REITs/InvITs.
ALSO READ: How To Structure Mutual Fund Withdrawals In A Volatile Market
4. Own Bonds And Certain Small Savings Schemes
The bond market is already pricing in many of the concerns amidst the West Asia war. The 10-year G-sec yield has inched up and is currently hovering around 7.0%. It's an opportunity to lock in high accrual income now, when bond prices have fallen (due to the inverse relationship between bond yields and prices).
That said, ideally, avoid taking on high exposure to the very long end of the yield curve. Prefer the medium-to-long duration bonds. The RBI Floating Rate Bonds, currently with a coupon rate of 8.05% and a 7-year maturity, may be worthwhile now.
You could also consider a small savings scheme such as PPF, which is tax-efficient with the current E-E-E status.
ALSO READ: Balanced Fund vs Advantage Fund: Which Is Better Choice In Current Market Environment
5. Review And Rebalance Your Portfolio
Over the years, if you have been investing in an ad hoc manner or following what your friends, family, or relatives are doing with their investments, it's time to review and rebalance your portfolio. It's possible your portfolio is over-diversified, which is impacting its real returns.
With a scientific review, you can own an optimally sized portfolio or suitable avenues that align with your risk profile, broader investment objective, the financial goals you are addressing, and the time available to achieve those goals. Keep in mind, investing is an individualistic exercise, so you cannot simply replicate what someone else does with his/her investments. One man's meat is another man's poison.
A review and rebalancing can help you structure a portfolio that is most suitable for you and potentially help you beat inflation and achieve the envisioned financial goals. If you do not possess the skill to do a mutual fund portfolio review, do not hesitate to seek the help of a SEBI-registered investment adviser.
The investment decisions you make go a long way in inflation-proofing your portfolio. Thus, a thoughtful approach is needed, whereby you not only earn effective real returns but also manage risk well. Make sure your portfolio is well-structured to ensure your financial success.
Happy investing!
ALSO READ: Why The Senior Citizen Savings Scheme (SCSS) Is A Good Option For Retirees Now
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
