In a report titled “When the World Feels Dangerous: Why Your Portfolio Shouldn’t Panic,” the fund house said investors should define portfolio allocations based on financial goals and risk tolerance rather than reacting to geopolitical developments or market headlines.
As an illustration, the report suggests that a moderate investor may hold a diversified portfolio such as 65% equity, 25% debt and 10% gold, with rebalancing bands of around ±5%. If equity allocation falls below 60% or rises above 70%, investors can rebalance their portfolios to restore the target allocation.
According to the report, market corrections during crises often automatically shift portfolio allocations.
When equity markets fall, the equity portion of a portfolio declines as a percentage of the total value, while relatively stable assets such as debt or gold increase in proportion.
Rebalancing in such situations effectively means buying equities at lower levels.
The report illustrates this through a hypothetical example of an investor who maintained a 65% equity and 35% debt allocation. When the Russia–Ukraine conflict triggered a market decline in February 2022, the equity portion of the portfolio fell to about 58%. Instead of selling equities amid the volatility, the investor rebalanced the portfolio by shifting funds from debt to equities to restore the original allocation.
Over the following 18 months, the portfolio rose more than 25% from the market lows.
The fund house said investors who sell equities during crises often underperform because they exit after markets have already fallen and hesitate to re-enter until markets have recovered significantly.
The report cited several past geopolitical events where markets declined temporarily but rebounded over time. During the 1998 Russian debt crisis, the Sensex fell by more than 10% but recovered within six months.
After the 2001 terrorist attacks in the United States, the Nifty 50 dropped about 17% in two weeks but returned to pre-attack levels by the end of the year.
Similarly, markets recovered after the 2008 Mumbai terror attacks, while volatility following the 2016 surgical strikes and the 2019 Balakot airstrikes proved short-lived. During the pandemic-driven selloff in 2020, the Nifty fell around 32% but rebounded within four months. After the outbreak of the Russia–Ukraine war in 2022, the index declined from around 18,000 to 15,200 before later rising above 25,000.
According to the report, geopolitical shocks tend to affect market sentiment in the short term but rarely alter the long-term drivers of equity markets such as corporate earnings, interest rates and valuations.
Instead of attempting to predict how geopolitical events will unfold, the report recommends that investors follow a systematic approach: define asset allocation in advance, periodically review portfolio allocations rather than daily market moves, and rebalance when allocations move outside predefined limits.
The report added that geopolitical uncertainty has historically been a constant feature of markets, but businesses and economies typically adapt over time, allowing markets to recover and continue growing.
