Dalal Street is bleeding, investors are panicking, and foreign capital is flowing out of the Indian stock market incessantly due to the US-Iran war. The combined forces of the US and Israel attacked Iran on February 28 this year, giving a strong jolt to stock markets across the world.
The war in West Asia shot up crude oil prices to multi-year high levels, dragged the Indian rupee to unprecedented lows, and prompted foreign institutional investors (FIIs) to hit the sell button again on the Indian equities after mild buying in February.
Unnerving data
Indian stock market benchmarks, the Sensex and the Nifty 50, have lost 10% each since the US-Israeli attack on Iran began on February 28. The broader Nifty 500 index has also plunged by 10%, with stocks falling up to 40%.
Investors’ wealth has plunged by more than ₹41 lakh crore over the period. On February 27, the cumulative market capitalisation of BSE-listed firms was ₹463.5 lakh crore, which dropped to ₹422.4 lakh crore on April 2.
FIIs have sold off Indian stocks worth more than ₹1.30 lakh crore in the cash segment since the start of the US-Iran war.
Is there more pain ahead?
There may not be a black and white answer to this question at this juncture, as no one knows when the West Asian war will end and by when crude oil supplies will return to normal.
US President Donald Trump, in his address to the nation on Wednesday, said the US military attack on Iran may end in the next two to three weeks, but he indicated that during the period, the attack could be more brutal.
Trump also did not offer clarity about the potential reopening of the Strait of Hormuz, which is a vital waterway for oil transportation. Experts say about 20% of global crude oil supplies pass through the Hormuz Strait.
“Trump’s statement that the U.S. could strike Iran ‘extremely hard’ over the next 2–3 weeks, without offering any clear timeline for de-escalation, has significantly heightened near-term geopolitical uncertainty,” Ajay Menon, MD and CEO – Wealth Management, Motilal Oswal Financial Services, noted.
For Indian equities, the outlook is grim due to the crude oil factor. Elevated crude oil prices can increase inflationary risks, dragging corporate profitability and the overall economic growth lower.
“Investors’ primary concern is the fate of the Strait of Hormuz. A ceasefire is a necessary condition for a resolution; reopening the Strait is the only condition sufficient to return global economies to a state of relative normalcy,” Vikram Kasat, Head – Advisory, PL Capital, said.
What should investors do?
Even though uncertainty over the US-Iran war persists, experts hope things will come back to normal in the next few days, which can trigger a sharp rally in the Indian stock market.
Since the recent correction has brought market valuations to fair levels, experts believe it is time to buy quality stocks for the long term.
“The market is expected to recover substantially, provided the current Iran issue is resolved within the next few weeks. If the war ends, oil prices could fall by 10% to 20% quickly. We actually saw a glimpse of this volatility back in March when there was some positive news,” G Chokkalingam, founder and head of research at Equinomics Research, said.
Experts also warn of going aggressive on equities, anticipating a rebound, as the market may remain volatile while assessing the full impact of the crude oil price spike on the Indian economy and earnings of Indian corporates.
Brokerage firm Axis Securities pointed out that India’s growth outlook remains relatively resilient, with GDP expected to grow in the range of 7–7.6% in FY27, supported by strong domestic demand and continued government capex.
However, the brokerage firm added that there are downside risks too due to higher oil prices, currency depreciation, and tighter financial conditions. Global institutions have started revising growth forecasts lower to about 5.9–6.5% scenarios in stressed cases, Axis Securities underscored.
Axis has maintained the December 2026 Nifty target at 28,080. However, in a bear case, the brokerage firm believes the index may drop to 23,865 by the end of the year. In a bull case scenario, Axis sees the Nifty at 29,480 by the end of December 2026.
Bajaj Finance, SBI, Kotak Mahindra Bank, Bharti Airtel, Avenue Supermarts (DMart), Max Healthcare Institute, LG Electronics India, Nestle India, and Eternal are the top picks of Axis Securities from the large-cap space, while Dalmia Bharat is its top pick from the mid-cap segment.
Ujjivan Small Finance Bank, Chalet Hotels, Minda Corporation, Navin Fluorine International, and Kalpataru Projects International are Axis Securities’ top picks from the small-cap segment.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
