Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
War vs Sensex - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 25, 2003

    War vs Sensex

    What would be the impact of war on the economy and the stock markets (which is a good indicator of the economy)? During robust economic growths, the stock markets post handsome gains. Whereas, during sluggish growth and uncertain economic future, the stock markets tend to remain volatile (i.e. the current situation). They are always looking for triggers and good news to trickle so that the markets can build on their gains. However, at present all we can hear of is the possibility of a long drawn US-Iraq war. Experts believe that a short war with Iraq could give the much-needed fillip to the lagging stock markets all around the world. However, at the same time, they are concerned of the consequences and the effects of a long drawn war on the world economies.

    Investors are concerned of the future of the economy and the effect of continued strength in oil prices. During times of such uncertainty, it is very difficult for an investor to take a view on his investment avenues, including stock markets.

    Have you ever wondered what happens to the stock markets during and after the war? The fact is that the stock markets do tank for sure when anything untoward or devastating incident takes place or is about to happen. But, at the same time, it is also (generally) true that the market players take this fall in the markets as the best time to buy into equities.

    Post-war effect on Sensex
    War/Conflict After 1 month After 3 months After 6 months After 1 year
    Gulf War 2% 25% 41% 97%
    WTC Attacks -6% 8% 12% -1%
    Parliament Attack 1% 6% -2% -1%
    US attacks on Afghanistan 9% 23% 27% 7%

    What has been observed in the last few wars/conflicts is that the stock markets lose ground before the action, but then bounce back smartly over a period of time. However, not always. The above table shows the stock market returns over various time periods post the conflicts. It can be seen that after the Gulf War started (it lasted for 43 days), the sensex gained 2% within a month from the date of commencement of the war. The gains increased further over a period of time as can be seen in the table and after a year, the sensex had gained 97%!

    Somewhat similar was the story after the WTC attacks. After 1 month of WTC attacks, though the sensex was lower by 6%, it bounced back and at the end of 3 months was higher by 12% over Sept 11, 2001 closing. However, the story changed from there onwards and the markets world over began to lose ground due to the uncertainty over the growth prospects of their economies. The situation reversed this time and the sensex was down marginally by 1% after a year of the WTC attacks.

    An investor should look at the above numbers and derive his own conclusions. It has been a mixed picture so far. Major world indices ended the year 2002 on losses (third year in a row). However, our sensex managed to buck the trend and register gains of 4% in the same period. So what should an investor do? Of course, any prudent investor would naturally play a balancing game in his portfolio, consisting of both - equities and debt. However, though the war/conflict may create volatility in the markets in the short-term, but for the long term, fall in markets provide an opportunity to build up portfolios by picking up fundamentally sound stocks at attractive valuations.



    Equitymaster requests your view! Post a comment on "War vs Sensex". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)