India’s stock markets staged a smart recovery on Thursday after falling in the previous two sessions, helped by short covering and bargain buying in beaten-down shares, as sentiment improved on reports that the West Asia conflict could ease.
The benchmark Nifty50 index recovered close to half of its recent losses in the last hour on Thursday, as reports emerged that Iran had reached out to the US for talks to end the war, improving risk appetite. The news coincided with the weekly expiry of Sensex options on Thursday, which also forced the traders to square off their positions in panic.
The US and Israel launched joint strikes on Iran on Saturday that killed its supreme leader Ayatollah Ali Khamenei, triggering retaliation and fuelling a wider regional conflict in West Asia, dragging stock markets around the world lower.
Over two trading sessions starting Monday, the Nifty50 had fallen 695 points, of which 285 points—about 41%—were recouped on Thursday. Investors squared off short positions in the final hour of trading, helping the index close 1.17% higher at 24,756.90. The BSE Sensex also ended the session 1.14% higher at 80,015.90
The markets were shut on Tuesday for a public holiday.
Investor caution
Investors are expected to watch for de-escalation cues to gauge further market direction, experts said.
“It would be premature to term this move as a reversal. Given the sharp decline seen earlier, the current move should be treated as an initial retracement of the fall,” said Rajesh Bhosale, technical analyst at Angel One. On the upside, any sustained move above the 25,000–25,100 levels would be crucial to signal a meaningful reversal, Bhosale added.
Since the short positions are already cut, if positive news emerges, the market could move up higher, considering the sharp fall seen in the past two days, said Rajesh Palviya, head of technical and fundamental research at Axis Securities.
The Indian rupee also appreciated 0.59% to 91.6 per dollar, likely aided by suspected central bank intervention and a softening of the US dollar and energy prices.
The recovery was broad-based, with the Nifty Midcap 150 index closing 1.53% higher and the Nifty Smallcap 250 index gaining 1.41%. Except for the Nifty IT index, all the other sectoral indices closed in the green.
Other Asian indices too inched higher. Japan's Nikkei 225 closed 1.75% up, South Korea’s Kospi rose 9.33%, while China's Shanghai Composite closed 0.64% up.
Chirag Mehta, chief investment officer at Quantum Mutual Fund, said that India’s vulnerability to the West Asia conflict primarily runs through oil prices, exports, and capital flows.
“If crude stays around $80–90 per barrel, the impact may remain limited, but a sharper rise could hurt the oil-import dependent economy. Export disruptions and potential FII outflows from emerging markets, including India, amid global uncertainty could also weigh on growth and markets,” Mehta added.
The geopolitical tensions come at a time when Indian markets already appear expensive.
The Nifty50 index remains somewhat expensive, trading at about 20 times its March 2027 forward earnings multiples, which is higher than the long-term average and still at about a 50% premium to the MSCI EM Index, Pratik Gupta, chief executive and co-head, Kotak Institutional Equities, said at an event.
“This is especially high considering earnings CAGR of 16% in FY26 and FY27, with downside risks to such estimates. Hence, we don’t expect meaningful upside to the Nifty50 in the short term,” Gupta added.