Since the start of the US-Iran conflict in February, sectoral performance in the Indian stock market has been sharply divided. While some sectors have rallied, others have struggled.
According to Kotak Mutual Fund’s latest report, the Nifty India Defence Index gained 18.7%, while the Nifty Capital Market Index rose 16.8% between 24 February and 30 June 2026.
In contrast, the declined 12.5% since the start of the US-Iran conflict.
With tensions between the US and Iran escalating once again, here’s what experts believe should do.
Should investors react to the changing sectoral performance?
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“Sectors like defence, pharma, energy, oil and gas upstream have delivered positive performance due to potential expectations of higher defence spending and elevated crude prices,” said Subhendu Harichandan, Executive Director, Anand Rathi Wealth.
“On the other hand, sectors like IT, FMCG, and downstream oil and gas sectors have underperformed due to slowing global growth, weaker consumer demand, and margin pressures arising from higher input costs,” he added.
Harichandan believes short-term geopolitical uncertainties can often lead to temporary shifts in sector leadership. “So, investors should avoid making investment decisions based on short-term geopolitical uncertainties,” he emphasised.
Which mutual fund categories look better placed?
Instead of increasing exposure to sector-specific funds, Harichandan recommends diversified that invest across sectors and market capitalisations.
“These include flexi-cap, multi-cap, large & mid-cap, and strategy-based funds like focused, value and dividend yield funds,” he noted.
Harichandan also advised against investing in broad-based passive funds such as ETFs and index funds, noting that they generally do not generate alpha relative to their benchmarks. On the other hand, active funds potentially deliver higher alpha when markets recover.
Saurav Basu, Chief Business Officer, Wealth & Advisory Business, Tata Capital, also favours diversified strategies. “Depending on risk appetite, investment horizon and current portfolio allocation, investors can consider multi-asset allocation funds or balanced advantage funds, particularly if their portfolio is heavily tilted towards equity,” he mentioned.
How should retail investors position their portfolios now?
“One can consider it as an opportunity to increase exposure through SIPs or staggered investments, as investing during these periods allows investors to accumulate more units at relatively lower prices and enhances long-term wealth creation through the benefit of rupee cost averaging,” Harichandan said.
Basu suggested that investors should review their asset allocation and avoid excessive exposure to any one sector, theme or market-cap segment.
“If equity allocation has moved beyond a comfortable level in a portfolio, investors can gradually rebalance towards debt, gold, or hybrid funds,” he concluded.