Why Market Corrections Often Create Long Term Opportunities for Investors

Markets have started the year on a weak note. The previous year was already impacted by global uncertainties such as geopolitical tensions and tariff related concerns. Because of this environment, India was among the weaker performing stock markets globally.

The situation briefly improved when India and the United States reached a trade agreement in early Feb 2026. This created optimism about economic growth and business sentiment. However, the recent conflict involving the United States and Iran has once again affected global market sentiment.

As a result of the conflict, Indian equity markets declined by around 4% within two days as global markets also saw selling pressure. At the same time crude oil prices surged sharply by more than 15%. This sudden rise in oil prices is closely linked to the strategic importance of the Strait of Hormuz which handles about 20% of global oil transportation.

For a country like India which imports a large portion of its energy needs, such developments can create uncertainty. Investors therefore closely track two key questions.

• How long the conflict will continue
• How long crude oil prices will remain elevated and by how much

At this stage the answers to these questions remain uncertain.

Market Behaviour During Geopolitical Events

It is difficult to predict when the current conflict will end or how severe the situation may become before stability returns. However, historical market behaviour during geopolitical events provides useful insights.

Over the past three decades, markets have gone through several similar episodes of geopolitical tension. An analysis of six major events between 1990 and 2026 shows that markets often react in a similar manner during such periods. On average, these events lasted around 4 weeks and were accompanied by temporary corrections in equity markets. After the correction phase, the Sensex delivered strong forward returns. The average return over 3 months was about 28%, while the 6-month average return stood at around 38%.

Investment Perspective During Market Volatility

From a 2-3 year perspective, such phases of market weakness may provide favourable entry points. Investors can consider deploying capital based on their risk appetite. This can be done through a one-time investment or through a staggered approach that helps manage short term volatility.

From an earnings and valuation perspective, the outlook for India remains stable. Corporate profits are expected to grow at a compounded annual rate of around 10-15% between the financial years 2025 and 2028. The lower end of this range considers the possibility of elevated crude oil prices for a certain period. At present, the broader market is trading at around 17.5x estimated earnings for the financial year 2028.

Given the uncertain global environment, sectors that are more dependent on domestic demand may be relatively better positioned. These include

• banking
• infrastructure and capital goods
• cement
• automobile companies with lower export exposure
• real estate
• discretionary consumption

Another strategy that becomes relevant during sharp market movements is tax loss harvesting. This approach involves selling securities that are currently at a loss to offset capital gains from profitable investments. By booking these losses, investors may reduce their taxable income. In certain cases, this type of activity may also increase volatility in individual stocks because it is driven by portfolio management decisions rather than changes in business fundamentals.

Sector Wise Impact of the Current Conflict

Auto space

Ongoing geopolitical tensions in the Middle East have pushed crude oil prices higher. Prices are currently around USD 80/barrel, which is about 20% higher over the past month. This creates pressure for domestic tyre manufacturers because many of their raw materials, including carbon black and synthetic rubber, are derived from crude oil. If oil prices remain elevated for a prolonged period, it could lead to lower profit margins for tyre companies.

Geopolitical tensions may also affect export heavy industries. Disruptions in key shipping routes can increase logistics costs and impact global trade flows. However, depreciation of the Indian rupee may partly offset these pressures.

Within the automobile manufacturer segment, Maruti Suzuki and Mahindra and Mahindra are preferred companies. In the auto component segment, Uno Minda and Lumax Auto Technologies remain the preferred choices.

Defence Sector

Defence companies may experience short term supply chain disruptions because the United States and Israel supply several critical systems and components to India.

However geopolitical tensions also highlight the importance of defence preparedness. India continues to increase its defence spending while encouraging domestic manufacturing. This may create long term opportunities for local defence companies, especially in areas such as

• electronic systems
• missiles
• combat drones
• ammunition

Given the strong long term growth drivers for the defence sector, Bharat Electronics and Astra Microwave are among the preferred companies in this space.

Capital Goods Sector

Disturbances in the Gulf region may affect engineering procurement and construction companies that have a significant share of their order backlog from countries such as Saudi Arabia, United Arab Emirates and Kuwait. If tensions escalate or continue for a longer period, project execution may slow down and some orders may face delays or cancellations, which could weigh on stock performance.

Product focused companies with export exposure to Europe and the Middle East may also face indirect effects such as higher logistics costs and delays in order enquiries.

Among large companies, Larsen and Toubro remains a preferred choice as recent stock correction already reflects concerns related to the conflict. In the mid and small company segment, ELGi Equipment, NRB Bearings and Aeroflex Industries are preferred companies.

Building Materials

The United States and Iran conflict may negatively affect tile manufacturers mainly due to higher gas prices. Rising energy costs can lead to pressure on margins in the near term and may continue if the conflict persists.

The impact occurs because increases in gas prices usually take about one quarter to be passed on to customers and also depend on competition and demand conditions.

Pharmaceutical Sector

Indian pharmaceutical exports remain structurally strong. However, the Iran and Israel conflict may create short term challenges through higher logistics costs and disruptions across West Asian shipping routes.

West Asia and North Africa account for about 5.7% of India’s pharmaceutical exports, which is around USD 1.75 billion in the FY2025. Companies may adjust shipment schedules and inventory to manage these disruptions.

If the disruption continues for a longer period, margins may face pressure due to rerouting, delays and higher freight costs. However, the impact is expected to be temporary and may be partly shared across the value chain.

Hotel Sector

The conflict may affect revenue per available room growth for the hotel industry during the fourth quarter of FY2026. Some hotel companies have reported room booking cancellations in March 2026 due to flight disruptions from the Middle East and Europe. As a result, revenue per available room growth may decline by around 2-3% in this quarter.

Growth is expected to recover in the first quarter of the FY2027 as a large share of room demand during this period comes from domestic business and leisure travellers. In addition, the Indian Premier League (IPL) scheduled between March and May 2026 is expected to support room demand for luxury hotels across India. Business travel bookings that were cancelled in March may also be rescheduled in April and May.

Preferred companies in the sector include Indian Hotels Company Limited, ITC Hotels and Chalet Hotels.

Paint Sector

Crude linked derivatives are important raw materials for paint manufacturers and account for around 20-25% of total input costs. Most paint companies typically maintain inventory of key inputs for about two months.

If crude oil prices rise from the current level of about USD 82/barrel and move closer to USD 100/barrel, it could put pressure on the margins of paint companies. A similar situation was seen during the Russia and Ukraine conflict when Brent crude rose to around USD 112/barrel. This led to input cost inflation of about 8% in the first half of FY2023 and resulted in a sequential decline of 410bps in gross margins during the first and second quarters of that year.

Asian Paints has corrected by about 22% from its six-month high and is currently trading at around 44x and 38x its estimated earnings for FY2027 and FY2028 respectively. This valuation correction limits downside risk and may provide a favourable entry opportunity for investors.

Oil and Gas Sector

The biggest risk for the energy sector is the possible disruption of the Strait of Hormuz.

This route carries

• around half of India's crude oil imports
• about 55% of liquefied natural gas imports
• roughly 80-85% of liquefied petroleum gas imports

Although India plans to increase crude oil purchases from other countries, the possible closure of the Strait of Hormuz remains a major risk. This route carries about 20% of global oil trade. Any disruption could push crude oil prices higher and significantly affect the margins of Indian oil marketing companies.

Chemical Industry

Many chemical companies depend on raw materials derived from crude oil such as naphtha, benzene and propylene. If geopolitical tensions continue for an extended period, raw material and freight costs may increase and trade movements may face delays. This could lead to pressure on margins, especially if companies find it difficult to pass on higher costs to customers in a weak demand environment.

Metal Sector

The impact on steel producers is expected to be limited because exports account for less than 6% of total steel production.

However, the non-ferrous metal segment may benefit. The Middle East contributes around 8% of global aluminium production. Any supply disruption from the region could lead LME Aluminium prices rising which is beneficial for primary producers such as Hindalco and Vedanta.

In metals space, our top picks are Tata Steel and Jindal Stainless Steel

Cement Sector

The cement sector is largely driven by domestic demand, but it remains sensitive to energy costs. Cement production is highly energy intensive and depends heavily on fuels such as petcoke and coal. Escalation in the conflict may push global crude oil prices higher, which can increase petcoke and diesel costs and affect the margins of cement companies.

Around 4-6 lakh tonnes of petcoke pass through the Strait of Hormuz every month, with India accounting for a large share of this volume. Since India imports nearly half of its petcoke requirement, any disruption could lead to higher petcoke prices. However, cement companies may be able to pass on higher energy and freight costs to customers due to a favourable demand and supply outlook for the sector.

Preferred companies include UltraTech Cement among large companies, and JK Lakshmi Cement and Star Cement in the mid-sized segment.

Top Picks

 Read full report here - icicidirect.com/mailcontent/market strategy-us-iran-war.pdf