As oil soars and stocks slide, investors in India should focus on equity yields over capital gains

India’s benchmark BSE Sensex slid nearly 3.2% on Monday morning before it recovered a bit to settle around 1.7% down at 77,566. The rupee hit a record low of 92.35 to the dollar. That Iran’s chokehold on Gulf oil supply hasn’t eased bodes ill for our economy. After all, we import nearly nine of every 10 barrels we consume.

Costlier crude would not just soak up extra dollars amid trade headwinds and weak capital inflows, but also fiscal resources if fuel tax cuts are used as shock absorbers for inflation—which may anyway prove hard to quell should energy relief elude us for weeks on end.

Our ‘Goldilocks’ run of rapid GDP growth and price stability is clearly at risk, unless the heat of fuel-pump prices in America makes the White House blink and call off the Iran war.

For now, though, the odds of that happening seem long, with the US yet to display signs of material success—say, on easing Iran’s oil clamp—and a defiant regime in Tehran having dug itself in for a battle of attrition.

In such a test of pain limits, what each side can endure is a significant factor. Tehran’s deployment of an energy shock, evident in its threat to cargo ships trying to exit the Gulf, has willy-nilly placed oil facilities within the sights of its firepower.

Even though overland pipelines could offer an alternate export path for about a third of the Gulf’s daily output, the region’s oil wells may soon have to tighten their spigots shut as storage capacity runs out and ‘force majeure’ calls multiply. With the price of crude oil so volatile, this is an appropriate moment for both warring sides to look for off-ramps.

Since Washington is given to shifting goals as it goes along, it should have little trouble spinning a victory tale, while Tehran could claim any outcome as a win that leaves the Islamic Republic intact. No less relieved would be America’s Gulf allies, wary as they must surely be of being dragged into hostilities with the ravages of Israel’s Gaza war still fresh in public memory.

Investors in India may feel no less trapped by the war’s shockwaves. As with any panic, stock prices could suffer more than a calm analysis would justify.

Of late, retail investments via mutual funds have struggled to make up for foreign bulk buyers pulling out of the market. These outflows seem unlikely to reverse without rupee stability, although currency support would require the Reserve Bank of India to stretch the span of time across which it fights volatility.

As for local investors, beaten-down share prices may have thrown up bargains for a buy-the-dips game of portfolio addition. But in general, equity investors now need to elongate their investment horizon and focus on stock yields instead of just capital gains. The war might have made the earnings outlook of some companies hazy, but a value orientation would help identify those that are placed well to reward shareholders with profits.

Even if it is hard not to track what one’s holdings are worth if encashed right away, focusing on what shares yield as dividends over the years is a good way to ride out this phase.