The Indian stock markets felt the brunt of escalating conflict between the US-Israel combined force against Iran on Monday that has spread to the Middle East in the last couple of days. Both benchmark indices fell over 1%.
However the good news was a significant recovery from the day’s lows, which market participants believe resulted from short covering. The Sensex plunged 2,743.46 points, or 3.38%, to an intraday low of 78,543.73. However, after recovering more than half the losses, it ended the day at a six-month low of 80,238.85, down 1,048.34 points, or 1.29%.
The Nifty dropped 575 points, or 2.3%, intraday before closing below the 25,000 mark for the first time in a month at 24,865.70, down 312.95 points, or 1.24%. Both indices had declined 1.17% and 1.25%, respectively, on Friday.
Investor wealth is down Rs 11.6 lakh crore
Investor wealth is down Rs 11.6 lakh crore over the past two sessions, of which Rs 6.6 lakh crore was wiped out on Monday alone.
Market volatility, as measured by the India VIX, surged 25% — the sharpest single-day rise in 11 months (since April 7, 2025) — to a nine-month high of 17.13.
Over the weekend, Israel and the US launched attacks on Iran. Iran retaliated with counterattacks on US bases in surrounding Gulf countries following the reported death of Supreme Leader Ayatollah Ali Khamenei in the airstrikes.
The escalation pushed benchmark Brent crude prices up 14% — the steepest surge in six years — to $82.37 per barrel, as traders assessed the impact of the effective closure of the Strait of Hormuz.
Key macroeconomic headwind for India
Higher crude prices pose a key macroeconomic headwind for India, potentially exerting pressure on inflation, currency stability, and corporate margins, thereby dampening overall equity market sentiment.
Shankar Sharma, founder, GQuant Investech said, “The impact on oil is going to be significant and that will negatively impact the Indian stock market which has already been in a two-year bear market relative to the entire world. This will also have impact on our balance of payments.”
He went on to caution that people are underestimating the scale and seriousness of this problem. That appears to be strong resolve on the Iranian side, and based on news, both America and Israel are taking losses as well. “This does not appear a simple quick war,” he added.
Christopher Wood, Global Head of Equity Strategy at Jefferies, while speaking to CNBC-TV18 admitted that it is hard markets not to account for geopolitical risks right now. He also believes that Indian markets need to see a meaningful correction for foreign institutional investors to come back. “FIIs can come back to India if semiconductor trade peaks with sharp sell-off in Korea/Taiwan,” he added.
Historically, market drawdowns around geopolitical shocks have tended to be short-lived. However, this conflict has more direct transmission channels into India’s economy, noted strategists Venugopal Garre and Nikhil Arela at Bernstein.
Much will depend on how quickly hostilities end. A shorter conflict that resolves decisively in favour of the US could materially reduce the macroeconomic impact and potentially leave India relatively better placed.
“A more prolonged escalation, however, could push the Nifty below 24,500 — the downside level we had flagged in our outlook earlier this year,” they said.
Overall, the market breadth was sharply negative, with 3,561 losers against 821 gainers on the BSE. Underperforming the benchmarks, the broader BSE Midcap and BSE Smallcap declined by 1.60% and 2.03% respectively,
Barring metals, which edged up 0.24%, all other sectoral indices ended in the red. Auto, consumer durables, oil & gas, PSU banks, and realty were the top laggards, declining by up to 2.20%.
Foreign portfolio investors sold shares worth Rs 3,295.64 crore, while domestic institutional investors bought shares worth Rs 8,593.87 crore, according to provisional BSE data.
Only three of the 30 Sensex stocks and eight of the 50 Nifty constituents ended in the green on Monday.
IndiGo, L&T, Adani Ports, Maruti Suzuki, and Asian Paints were the top Sensex losers, falling by up to 6.25%. On the other hand, BEL, Sun Pharma, and ITC were the top gainers, rising by up to 2.09%.
L&T and Reliance Industries together accounted for 418 points, or 40%, of the Sensex’s 1,048-point decline.
In Asia, Thailand, the Philippines, Indonesia, Hong Kong, and Singapore were among the top losers, each falling over 2%.