With geopolitical tensions rising and markets turning volatile, investors may need to rethink their strategy—focusing less on chasing returns and more on protecting capital in the near term.
According to a note by Shriram Asset Management Company, the current environment—marked by elevated oil prices and global uncertainty—calls for a defensive investment approach, particularly in fixed income portfolios.
The trigger is a combination of global developments, including tensions involving the United States and Iran, which have pushed oil prices above $100 per barrel and driven a spike in market volatility indicators such as the India VIX. These factors are not just short-term disruptions; they have a direct bearing on inflation, interest rates, and overall financial stability—key variables that influence investor returns across asset classes.
In such a backdrop, fixed income portfolios, particularly those exposed to long-duration bonds, are facing heightened risks.
Long-term debt instruments are especially sensitive to changes in interest rates, and any sharp movement in yields can lead to significant mark-to-market losses. As volatility rises, this sensitivity becomes more pronounced, making longer-duration strategies less attractive in the current phase.
Where should investors invest?
Instead, the report suggests that investors consider moving surplus funds toward the shorter end of the yield curve. Instruments such as overnight and liquid funds, which invest in very short-term securities, tend to be far less sensitive to interest rate fluctuations. This makes them relatively more stable during periods of uncertainty, while also offering the advantage of high liquidity.
The idea is not to exit the market, but to reposition portfolios in a way that preserves capital while retaining flexibility. By parking funds in short-duration instruments, investors can avoid the immediate impact of volatility and remain well-positioned to take advantage of opportunities once conditions stabilise.
“By focusing on these short-term instruments, investors can maintain high liquidity and stable risk adjusted returns while waiting for the war to clear. This defensive stance allows for a tactical transition; once the geopolitical landscape stabilizes, investors can gradually redeploy capital into duration schemes or equities to capture long-term growth. For now, the strategy centers on avoiding duration risk in favor of the stability provided by instruments maturing in the very near term,” said Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram AMC.
This approach reflects a broader shift in investment thinking during uncertain times. Rather than attempting to predict market movements or chase returns, the emphasis moves toward managing risk and maintaining optionality. In practical terms, this means staying invested, but in assets that are less vulnerable to sudden market swings.
“While short-term volatility may create tactical trading opportunities, a prolonged disruption to the Strait of Hormuz would act as a structural external shock to India’s growth
trajectory. In such a scenario, the risk-reward equation clearly shifts away from aggressive duration positioning toward high-quality accrual strategies that prioritize stability amid elevated uncertainty. A meaningful easing in oil prices and Rupee volatility would be key signals for reassessing duration exposure,” Modani added.
