Iran war: Up to 37% return! Sensex performance 1-6 months after war outbreaks, terror attacks

The ongoing US-Israel-Iran war may have spooked stock market investors, analysts said geopolitical events like the prevailing one provide stupendous buying opportunities. They cited past geopolitical events such as Iraq War of 1990, Kargil War of 1999, World Trade center (2001) and 26/11 Mumbai terror attacks (2008), Pulwama attack and Russia-Ukraine conflict (2022) to suggest the equity benchmark BSE Sensex, on an average, delivered 16 per cent returns in one month post such event, 27 per cent return in three months and 37 per cent return six months post the initial development. 

Last three decades of data suggests an average event ran thought four weeks wherein equity markets faced correction and the average three-month and six-month returns that the Sensex delivered post the event stood at 27-37 per cent, ICICI Direct said in a fresh note. 

"One can deploy, basis risk appetite, on a lumpsum basis or a staggered basis ( to counter any incremental volatility in the upcoming days). From a earnings and valuation perspective, we believe India can deliver 10-15 per cent PAT CAGR over FY25-FY28E (lower band takes into account elevated crude prices for a period of time, which at this point is difficult to fathom) whereas the broader markets are trading at 17.5 times FY28E EPS," said ICICI Direct in a note. 

Tax-loss harvesting becomes an effective portfolio management strategy in sharp market movement environment. It involves selling securities at a loss to offset capital gains tax liability from profitable investments. By realizing these losses, investors can lower their taxable income. In few cases, individual stocks may witness higher volatility due to this nonfundamental investor activity, the brokerage said.

ICICI Direct said given the uncertainty, one should prefer domestic oriented sectors like banks, infra, capital goods,cement, auto with least export share, real estate and consumption discretionary plays.

Morgan Stanley earlier on Wednesday said Indian stocks the ongoign fall could be an opportunity to buy high-quality businesses at reasonable prices despite the potential for near-term volatility. It suggested base case target of 95,000 for Sensex, a bear case target of 76,000 and a bull case target of 1,07,000 for December 2026. 

Sensex is the cheapest in gold terms, it said. The trailing 12-month index performance is almost the worst in history and relative valuations are at previous troughs, it added.  

"Geopolitical tensions in the Middle East have just created a new challenge for the market. While India’s oil intensity is a lot lower than before, it needs to import oil and the uncertainty in oil logistics and, potentially, production hurts. The lack of a direct AI play seems to be the most persistent challenge with potential AI disruption for Indian services exports, aggravating matters," it said.

Technical outlook
Emkay Global said Nifty has corrected 7 per cent from its recent peak and is approaching a key support band of 24,300–24,200, which coincides with the 50 per cent retracement of the prior up-move. As long as the index sustains above this zone, the decline is likely to remain a measured retracement within the broader constructive trend, it said.

"A breach could expose the index toward 23,800, on our estimate. Globally, equity benchmarks such as the MSCI ACWI and MSCI World Index are maintaining a broadly positive structure despite a mild consolidation, while the MSCI Emerging Markets Index remains firm after the recent profit booking," it said.