US-Iran war drags Nifty 50 down over 1,000 points in five sessions; index now 9% off recent highs

It seems that early 2026 has brought many challenges to the Indian stock market, similar to the previous year, forcing the key benchmark indices to navigate through rough terrain.

Investors had hoped for better performance from the Indian stock market in the first quarter of 2026 amid expectations of a recovery in earnings. However, concerns about AI disruptions, compounded by unexpected announcements in the Union Budget 2026 and the latest escalation of war in the Middle East, have eroded investor confidence in Asia’s third-largest economy.

The ongoing war involving Iran, the United States, and Israel has pushed the Indian stock market into deep trouble, as widening tensions in the Middle East have led to the closure of the Strait of Hormuz, disrupting energy flows to Asian markets and prompting producers to begin shutting in output, sending crude prices to four-year highs.

India is extremely vulnerable to rising crude oil prices, as it imports nearly 85% of its oil requirements. A sudden spike in prices could push consumer prices higher and dent the earnings of many companies that use crude oil as a major raw material.

For the government, higher crude prices could widen the import bill, requiring more rupees to buy the same amount of dollars. This, in turn, could trigger further imported inflation in the economy.

Vinod Nair, Head of Research, Geojit Investments, said, "Selling intensified as the Middle East conflict entered its second week with no signs of de-escalation. The sustained rise in crude prices is likely to complicate the RBI’s policy outlook by keeping inflation elevated and posing risks to growth."

As the war shows no signs of de-escalation, investors hit the panic button in Monday's session, sending equities to their lowest level in 10 months.

Meanwhile, overseas investors—who had turned buyers in February—have also changed their strategy in response to the conflict, pulling out ₹21,000 crore in the first five trading sessions of March.

Going ahead, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, expects FPIs to be unlikely to return as buyers until there is greater clarity on the geopolitical situation and crude prices moderate.

Nifty slides nearly 9% from January peak as war jitters rattle markets

Since the start of the war, the Nifty 50 has fallen 1,150 points, or 4.5%, marking a sharp decline that investors have not seen in the index in recent times. This has pushed the benchmark nearly 9% lower from its January 2026 peak of 26,325.

The index has closed the last three months in the red, with March alone down 4.57% so far. As many as 35 constituents have traded in the red in 2026 to date, with IT and FMCG stocks leading the losses, while crude-sensitive sectors such as paints and aviation have seen a sharp meltdown in their stock prices.

The sell-off is not limited to the Indian stock market. Heavy selling has also been witnessed across other major Asian markets over the past week, partly due to the region’s heavy reliance on fuel shipments passing through the Strait of Hormuz.

There are also growing concerns that a sustained supply shock could trigger a global economic slowdown, undermining key export-driven industries.

Consequently, investors are booking profits from the recent AI-driven rally, particularly in last year’s top-performing markets such as South Korea and Taiwan, which gained 75.63% and 27%, respectively, in 2025.

Outlook: Nifty 50 recovery unlikely until crude cools and geopolitical tensions ease

Market experts believe volatility could persist in the near term as geopolitical tensions and rising crude oil prices continue to weigh on investor sentiment.

Hitesh Tailor, Technical Research Analyst at Choice Broking, said, “If geopolitical tensions continue to escalate and volatility remains elevated, the Nifty 50 could extend its decline toward the 23,000–22,900 zone in the near term, which emerges as the next key short-term support area where some demand or short covering may emerge.”

Echoing similar concerns, Ponmudi R, CEO of Enrich Money, said markets are likely to remain volatile in the near term as participants continue to closely track developments in the Middle East conflict and movements in crude oil prices.

Hariprasad K, SEBI-registered Research Analyst and Founder of Livelong Wealth, also highlighted that with crude prices elevated, volatility rising sharply, and currency pressures emerging, market sentiment is likely to remain fragile in the near term as investors closely monitor developments in the Middle East and their potential implications for global energy markets and inflation.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.