Markets cheered on Wednesday as a fragile peace bloomed in West Asia, following threats of a civilizational wipeout the previous day. While the Sensex had its best day in over five years on Wednesday and the Nifty rose the most in almost a year, experts cautioned that the relief may be temporary, as Tehran has not indicated a definitive pause to its missile and drone strikes.
The Nifty and the Sensex jumped 3.78% and 3.85% to close at 23,997 and 77,562, their highest gains since 12 May 2025, and 1 February 2021, respectively. During the day’s session, the Nifty recovered 4.32% of its fall since 28 February, when the West Asia war broke out. Anxieties cooled, with the India volatility index plunging 20%, its steepest single-day drop since 5 June, 2024.
“The announcement of a two-week ceasefire has lifted near-term market sentiment. However, it is premature to conclude that the conflict is fully behind us,” said Vinay Jaising, chief investment officer and head of equity advisory at ASK Private Wealth. Sustained improvement in sentiment will depend on whether the ceasefire translates into a lasting de-escalation, Jaising added.
The US and Iran entered into a two-week provisional ceasefire just an hour before a major military deadline, which includes a temporary reopening of the Strait of Hormuz. The agreement followed 40 days of warfare that sowed widespread destruction in West Asia and disrupted energy supply chains.
The ceasefire is market-positive because it directly reduces the risk of an oil shock to inflation and growth, Stephen Dover, head of Franklin Templeton Institute, wrote in a note. However, he too added that given its temporary and conditional nature, it should be treated as a relief rally, not a definitive all-clear.
Sudeep Shah of SBI Securities had a different take. “The recent upmove in Nifty appears to be more than just a relief rally, supported by strong price action, improving breadth, and positive momentum indicators,” said Shah, who heads technical and derivatives research at the broking firm. The breakout above the 20-day exponential moving average and easing volatility suggest a shift toward a short-term bullish trend rather than a mere bounce, Shah added.
The BSE’s market capitalization increased by ₹16 trillion on Wednesday. The rally was broad-based, with the Nifty Smallcap and Midcap indices gaining 3.9% and 4.03% higher. All of Nifty’s sectoral indices closed in green. Adding to the positive tone was the central bank’s decision to keep the repo rate unchanged at 5.25%.
Foreign portfolio investors (FPIs) net sold shares worth ₹2,811 core in secondary markets on Wednesday, provisional data from BSE showed. DIIs net bought shares worth ₹4,168 crore.
Global markets rejoiced as well, with South Korea’s Kospi rising 6.8%, Japan’s Nikkei 5.4%, China’s CSI 300 3.5%, and Hongkong’s Hang Seng index 3.1%. Oil plunged over 7% to $93 a barrel 12% following the ceasefire, while the rupee gained 50 paise during the day. However, oil remains below the pre-war level of ₹73.91, indicating that even with the ceasefire announcement, the risk premium still exists.
Dover of Franklin Templeton said the damage is done as energy infrastructure across the Gulf has been hit, and restoring full production capacity will take time. “Supply normalization won’t be immediate, which means that oil, natural gas and fertilizer prices probably won’t fall quickly back to pre-war levels,” he added.
This comes on the back of already slowing earnings growth. Net sales growth of 7.26% YoY in Q3FY26 and net profit growth of 2.37% YoY in Q3FY26.
Earnings growth expectations for the Nifty for FY27 have moderated from 16% earlier to around 12%, and valuations have corrected sharply, said Devarsh Vakil, head of prime research at HDFC Securities. “The combination of steady earnings growth and scope for valuation re-rating makes current levels attractive for long-term investors,” he added.
With this, the Nifty’s trailing price-to-earnings is at 22.2X, closer to its ten-year average PE of 23.2x.
Since the war began, FPIs have net sold shares worth ₹1.72 trillion in primary and secondary markets. DIIs have provided strong support during the time, with $15 billion in inflows in March largely from SIPs, pensions, and insurance, said Jaising of ASK Private Wealth. However, at the current pace, DII support may sustain markets for only another month if FII outflows persist and stabilization in global conditions is key to reversing FII sentiment, Jaising added.
