Navigating US-Iran Tensions: Defence Funds Soar, IT Lags in Indian Stock Market

As the US-Iran conflict escalates, sectoral performance in the Indian stock market has been sharply divided, with some sectors rallying while others struggle. Defence funds have surged, while IT lags, leaving mutual fund investors wondering what to do.

Defence Funds Soar, IT Lags Amid US-Iran Tensions

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 Nifty IT Index declined 12.5% since the start of the US-Iran conflict.

Experts believe that 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.

Understanding Sectoral Performance

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.

Market Impact: What Investors Should Do

• Experts recommend diversified equity funds 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.
• Investors should avoid making investment decisions based on short-term geopolitical uncertainties.

Key Takeaways

• Investors should consider diversified equity funds that invest across sectors and market capitalisations.
• Short-term geopolitical uncertainties can lead to temporary shifts in sector leadership.
• Investors should avoid excessive exposure to any one sector, theme or market-cap segment.

FAQs

What are the recommended investment strategies during US-Iran tensions?

Experts recommend diversified equity funds that invest across sectors and market capitalisations, such as flexi-cap, multi-cap, large & mid-cap, and strategy-based funds like focused, value and dividend yield funds.

Should investors increase exposure to sector-specific funds?

No, experts advise against increasing exposure to sector-specific funds, as short-term geopolitical uncertainties can lead to temporary shifts in sector leadership.

What are the benefits of investing during periods of uncertainty?

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.

Conclusion

As the US-Iran conflict escalates, investors should consider diversified equity funds that invest across sectors and market capitalisations. Avoid making investment decisions based on short-term geopolitical uncertainties and excessive exposure to any one sector, theme or market-cap segment. Review your asset allocation and rebalance towards debt, gold, or hybrid funds if necessary. By doing so, you can navigate the current market volatility and achieve your long-term investment goals.