High hopes of rally amid Iran war fear
If it’s not one thing, it’s another for the Indian stock markets. Thursday’s bloodbath saw the benchmark indices, Sensex and Nifty, fall 1.48 and 1.41 percent, respectively, ending a three-day winning streak. If fears of rising geopolitical tensions between the US and Iran sparked a widespread selloff, Thursday’s market crash was also partly due to profit-booking, given that domestic markets had traded close to record highs in recent sessions. In contrast, US and European stocks saw minimal declines despite rising geopolitical risk from Iran. Gold prices remained unusually calm around $5,000. The S&P500 fell 0.2 percent, while the Dow Jones Industrial Average and Nasdaq Composite posted marginal declines. Anticipation is high that Indian markets will rally on Monday, thanks to the US Supreme Court’s decision to strike down President Donald Trump’s tariffs as illegal. The announcement saw a brief market rally in the US, though rising US-Iran war tensions weighed on sentiment.
Crude prices continued their upward march. West Texas Intermediate futures shot past $66.35 per barrel and Brent touched $71.48. Markets reacted to the potential impact on oil flows through the Strait of Hormuz. Higher energy prices lead to higher inflation and prevent further rate cuts. Trump warned Tehran of traumatic consequences if a deal is not reached within a month. The recent military buildup in the region only underscores the likelihood of escalation. Analysts believe Trump’s strategy is to choke off oil supplies to China. This could escalate into a broader regional war or even a world war if Russia, China and North Korea join forces. Such a move would challenge Washington’s attempts at global hegemony. A likely US-Iran war will have significant ramifications. China sources about 19 percent of its oil from Iran. Cutting off this supply will annoy Beijing which already saw snapped supplies from Venezuela after the US capture of Nicolás Maduro.
Essentially, it seems that Washington’s clash with Iran is as much an attack on Beijing. Such geopolitical tensions amid firmer crude prices spell trouble for oil-importing countries like India. These factors not only spike inflation but also upset our fiscal math. Notwithstanding India’s strong fundamentals, foreign portfolio investors have continued to offload. They have sold an estimated ₹20,000 crore since the beginning of 2026. Going forward, market volatility will likely persist. This could prompt even sharper capital outflows than in 2025.