Introduction
Geopolitical risk refers to the potential impact of global events, such as wars, trade tensions, or sanctions, on economies and financial markets, including your investments. In 2025, current geopolitical issues, such as US-China tensions, Middle East conflicts, and India-Pakistan border dynamics, create volatility that demands your attention. Understanding current geopolitical issues and tracking key economic indicators can help you make informed decisions, minimising geopolitical risks for business and your portfolio.
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Here is your guide to the most important indicators to monitor during economic turbulence.
1. Consumer Price Index (CPI)
CPI is an inflation indicator of the cost of goods and services that people use every day, including food, fuel, and housing. The CPI measures current prices for CPI components at a given time. A geopolitical risk, such as continued tensions in the Middle East in 2025, causing unrest in the oil supply lines, could spike commodity prices and raise India's CPI. For instance, if Brent crude rose above $100 per barrel, fuel prices and inflation would increase. A sharp rise in CPI may prompt the Reserve Bank of India (RBI) to raise interest rates, negatively impacting rate-sensitive sectors like banking, auto, and real estate.
What to do: Check for the monthly CPI from the Ministry of Statistics. If the inflation rate exceeds the RBI target of 4–6%, you should implement a tighter monetary policy, which can apply pressure to stock valuations. You might need to adjust your portfolio and move into defensive sectors like FMCG, which often perform well in inflationary conditions.
2. Gross Domestic Product (GDP)
GDP is an indicator of the country's overall economic output that reflects the general health of industries and services in the economy and varies heavily with consumption. If there were to be significant geopolitical events like the US-China trade frictions in 2025, a surge in uncertainty could impact global demand and affect India's export sectors like IT and textiles.
What to do: Monitor GDP quarterly from the National Statistical Office. GDP reflects the overall health of the economy. Geopolitical shocks, such as US-China trade frictions, can reduce global demand and impact India's export sectors, including IT and textiles. If GDP falls but is still strong, the opportunity is again in growth stocks.
3. Purchasing Managers Index (PMI)
The PMI, a metric for the health of a country's manufacturing and services industry, is based on many factors, including manufacturing order levels, production and employment. PMI is a forward-looking indicator that gauges the health of the manufacturing and services sectors. A reading above 50 indicates expansion, while below 50 suggests contraction. A falling PMI signals slowing business activity and weaker demand.
What to do: Follow the monthly PMI reports that are published. A declining PMI indicates caution when considering investments in industrial stocks; however, a PMI above 55 indicates that you may want to invest in companies exposed to manufacturing or logistics.
4. Oil Prices
Because India imports more than 80% of its crude oil, Brent crude oil prices provide a helpful indication. An increase of $10 in Brent crude could elevate India's import bill, worsen the trade deficit, and depreciate the rupee. This could ignite inflation and threaten the margins of corporates, particularly those exposed to oil, such as airlines and chemical firms.
What to do: Watch Brent crude oil prices on global exchanges daily. If prices exceed $90/barrel, consider reducing your focus on oil-sensitive stocks and focusing on the sector in renewable energy and IT-based companies that are less exposed to fuel prices.
5. Currency Fluctuations
The Indian rupee is vulnerable to geopolitical uncertainty, and its value against the US dollar can easily change. Capital flows will likely change decisively when the US sanctions Russia or the India-China conflict flares up in 2025, weakening the rupee. A weaker rupee will mean higher import costs and inflation for consumers, but cheaper exports to other economies. At the same time, imports to India are less likely to be based on competition, like the IT and pharma sectors.
What to do: If the rupee weakens beyond ₹85, you can consider returning your attention to equity markets, emphasising export-based and not rupee-based buying opportunities. If the rupee continues to strengthen and is below ₹80, look at domestic consumption-based equity market buying opportunities among the sectors of retail or FMCG. In a way, the movements in currency relative to the dollar should help you map which sectors in the economy to leverage.
Conclusion
The headlines can be sensational during geopolitical uncertainty, but the data tells the real story. Following indicators like CPI, GDP, PMI, oil prices, and currency fluctuations will help you build a more balanced and nimbler portfolio.
If inflation accelerates or GDP declines, the weight toward defensive or domestic sectors increases. If PMI or exports rise, cycle-specific or growth sectors may outperform. Ultimately, staying informed and diversified is your best defence measure.