Markets still factoring-in second order impact of Iran war: Harshad Patil

As markets navigate geopolitical uncertainty, investors are recalibrating their strategies. Harshad Patil, CIO at Tata AIA Life, outlines how he is positioning portfolios amid the Iran conflict

With the Iran conflict adding a fresh layer of uncertainty to global markets, investors are closely tracking second-order risks around oil, inflation, and growth. In an email interview with Nikita Vashisht, Harshad Patil, chief investment officer, Tata AIA Life Insurance explains how much of this risk is already priced in, and where long-term opportunities lie despite near-term volatility. Edited excerpts:

 

Do you think the second-order impact of the Iran war has been fully priced-in by markets? Which sectors currently offer the best risk-reward profile from a long-term institutional investor's perspective?

 

Markets have absorbed the immediate shock from the Iran conflict to an extent even as second-order effects are still evolving. The real risk lies in sustained pressure on crude oil prices and consequently on inflation and currency, which can gradually influence earnings expectations. We think markets believe the war will end within five to six weeks; any prolonged conflict beyond this time frame will mean further downside.

 

 

From a long-term perspective, we prefer sectors with structural visibility and relative insulation from external shocks. We like Defence, Financials, particularly private banks, and Power and renewables.

 

How have you adjusted your portfolio in 2026? Have you started deploying cash now?

 

Our portfolio strategy in 2026 has been calibrated and phased, balancing near-term volatility with long-term opportunities.

 

To what extent are AI models, if any, assisting you in portfolio management?

 

We are using AI to enhance research and risk management through data analysis. However, investment decisions continue to be anchored in fundamental research, with AI acting as a key support layer.

 

Global central banks are signaling towards 'higher-for-longer' rates. Has this affected your fixed income strategy?

 

Global yields remain elevated due to persistent inflation concerns and fiscal dynamics. However, India’s macroeconomic position provides relative stability at this point in time. The domestic rate cycle appears to be closer to a pause, with the focus of monetary policy shifting towards liquidity management and transmission of the earlier rate cuts. Sustained high oil prices increase the possibility of the Monetary Policy Committee (MPC) holding rates steady as this supply-side shock has offsetting effects of lower growth and higher inflation.

 

Overall, even though large moving parts create near-term uncertainty in the domestic rates outlook, these levels are reasonable for an investor with a medium- to long-term horizon to lock in yields.

 

Tata AIA, recently, launched Value-Based funds. How have they performed in this market? Where do you see opportunities now?

 

While our value-based funds are relatively recent, the underlying philosophy is aligned with the current market environment, where volatility has created dispersion in valuations.

 

In addition, we have launched the Large Mid Cap Innovation Fund and the Global AI and Technology Leaders Fund, which are designed to capture emerging structural themes that will reshape competitiveness and enhance growth across sectors for years to come. Together, these strategies allow investors to balance value-oriented opportunities with innovation-led growth, within a disciplined and long-term investment framework.

 

Is there another way to play the AI theme in India, beyond the traditional IT stocks?

 

The AI opportunity should be viewed as a broad, cross-sector transformation rather than being confined to traditional IT services. Beyond IT, AI is driving significant changes across digital infrastructure, including data centres, cloud ecosystems, and power demand. It is also transforming sectors such as financial services, where it is being used for underwriting and risk management, and healthcare, where it is enabling diagnostics and personalized treatment.

 

In the Indian context, the opportunity lies both in adoption and enablement. Companies that are building infrastructure as well as those integrating AI into their business models are likely to benefit over time. Our Global AI and Technology Leaders Fund is structured to capture this broader ecosystem by providing exposure across the AI value chain, including semiconductors, advanced computing, and global technology leaders.