The escalation of conflict between the US-Israel and Iran is raising concerns about whether such tension can derail long-term growth? Axis Asset Management struck a positive note. Though India is economically exposed to the region, they believe the market fundamentals are likely to stand tall over the long-term.
“Markets may fall, currencies may weaken and oil may spike. But fundamentals reassert themselves over a period of time,” Axis Asset Managment stated in the report.
Short-term volatility, not structural damage
Looking at past geopolitical conflicts, Axis Asset Management pointed out that such events usually trigger short-term market turbulence but rarely lead to prolonged equity underperformance, especially when conflicts remain regional.
Indian markets have repeatedly absorbed external shocks. They tend to reprice risk briefly and then return focus to fundamentals such as earnings growth, liquidity and domestic demand.
Axis Asset Management lists out some of the key factors to watch –
Oil at $84: Oil-sensitive sector in focus
With the Israel–Iran conflict intensifying, the biggest shock for India could come from crude oil supply, as the country imports more than 80% of its crude oil requirements. Any spike in prices would raise input costs, widen the current account deficit and fuel inflation.
Crude prices have already surged to nearly $84 from $72 on Friday, before the conflict escalated.
Axis Asset Management said, “Equity markets tend to react quickly, particularly in oil-sensitive sectors such as aviation, paints, cement and chemicals.”
However, past experience shows that oil shocks alone have not derailed Indian equities unless they persist long enough to damage growth and monetary stability.
“During the Russia–Ukraine war in 2022, for example, Brent crude surged above $100 per barrel. Yet after an initial sell-off, the Nifty 50 still ended the year in positive territory,” the report noted.
Rupee slide may be short-lived; strong FX reserves help
Rupee had touched a record low at 92.30 in the Wednesday trade.
Axis Asset Managment noted that the Periods of geopolitical stress usually strengthen the US dollar, putting pressure on emerging market currencies, including the rupee.
However, “India’s sizeable foreign-exchange reserves and a stronger external balance sheet act as effective buffers,” Axis Asset Managment said. It added that the current account deficit and fiscal deficit also remain under control.
While foreign institutional investor flows may add to short-term volatility, currency movements have rarely translated into a prolonged decline in Indian equities.
Why the market is likely to remain quiet?
Axis Asset Management highlighted that markets price the duration and economic impact of events, not just headlines. Once investors assess that supply disruptions are manageable and policy frameworks remain intact, risk premiums tend to compress.
In the Middle East conflict scenario disrupting the Strait of Hormuz and oil supply, the Indian government has assured, according to ANI, that India’s current energy stock position is comfortable and supplies are being replenished daily. It also noted that there is no shortage of LPG or LNG, as the government is in touch with other suppliers as well.
Conclusion: Geopolitical shocks temporary for India’s growth- Axis
Axis Asset Managment noted that India’s growth remains largely driven by domestic consumption, a recovery in capital expenditure, digitisation and manufacturing realignment. As a result, geopolitical shocks typically act as temporary interruptions rather than long-term inflection points.
Overall, Axis Asset Management said that conflicts can raise short-term volatility, history suggests that exiting markets during such phases often leads to missed recoveries.