The Iran-US peace agreement has lifted sentiment across the Indian economy, with equity and foreign exchange markets cheering the development. Benchmark equity indices closed nearly 1% higher after surging more than 1.5% intraday, while the rupee strengthened sharply. Gold prices remained firm, although government bonds pared some of their gains on Monday. Economists, however, cautioned that the lagged impact of the Iran conflict could continue to weigh on the economy amid persistent inflationary pressures.
The NSE Nifty 50 gained 231 points, or 0.98 per cent, to settle at 23,853, while the BSE Sensex advanced 736 points, or 0.97 per cent, to close at 76,264.33. Broader markets outperformed the benchmarks, with the Nifty Midcap 100 rising 1.29 per cent and the Nifty Smallcap 100 gaining 1.11 per cent.
The rupee appreciated by about 41 paise to close at 94.71 against the US dollar as sentiment improved significantly following positive developments on the US-Iran peace front and confirmation of the reopening of the Strait of Hormuz. The currency was further supported by a decline in crude oil prices, with Brent crude falling to as low as $83 a barrel.
Gold prices climbed by Rs 2,500 to Rs 1.59 lakh per 10 grams in the national capital on Monday, while silver advanced to Rs 2.60 lakh per kg, tracking firm global trends after the US and Iran agreed on a peace framework.
“The removal of supply disruptions has eased concerns over crude oil availability and pricing, providing substantial relief to oil-importing economies such as India. The normalization of crude flows through Hormuz is expected to reduce pressure on India's import bill, improve current account expectations, and support capital market sentiment. These factors have helped strengthen the rupee over the past few sessions,” said Jateen Trivedi, Vice-President, Research Analyst – Commodity and Currency, LKP Securities.
While the peace deal is a major positive for the economy, analysts warned that a return to normalcy would take time and that the economic benefits would be felt only gradually. Economists said the US-Iran agreement is unlikely to materially improve India's GDP growth outlook for FY27, as crude oil prices are expected to remain elevated at around $90 per barrel and the impact of nearly a quarter of higher energy costs and supply disruptions is likely to weigh on growth.
“Even if crude oil prices fall below $80 per barrel after a deal is signed and tanker traffic through the Strait of Hormuz normalizes, the Indian economy has already spent nearly a quarter of the year in slowdown mode. The effects of this disruption will continue to be felt with a lag through the rest of FY27, including higher retail inflation, elevated corporate borrowing costs, and slower employment generation,” said Debopam Chaudhary, Chief Economist, Piramal Group.
Chaudhary does not expect any meaningful upward revision to the Reserve Bank of India's FY27 growth projections.
The RBI on June 5 revised its FY27 real GDP growth forecast downward to 6.6% from 6.9% earlier, citing risks arising from the West Asia conflict, elevated crude oil prices and weather-related uncertainties. This marked the second downward revision to the central bank's growth forecast this year.
Madhavi Arora, Economist at Emkay Global, said global oil demand is likely to remain higher than supply through 2026, with a surplus emerging only in the second half of FY27 and beyond.
“We maintain our FY27 Brent crude forecast at $90 per barrel, with GDP growth at 6.3%, headline inflation at 5.1% and the current account deficit at 2.3% of GDP,” Arora said.
The West Asia crisis, which has now come to a halt after more than three months of intense conflict, weighed on India's growth outlook primarily through higher crude oil prices, which increased the country's import bill and fuelled domestic inflation. At the peak of the conflict, crude oil prices surged to as high as $120 a barrel.
