The Iran-US conflict has sent shockwaves through Indian markets, pushing the rupee to a record low of 92.32 and driving crude oil past $80 per barrel. As the Nifty 50 shed 2.1% in just four days, foreign investors pulled out over ₹11,700 crore, seeking safety in a strengthening dollar.
With the Strait of Hormuz blockade threatening energy supplies and squeezing margins for oil and chemical firms, investors are caught between gold's safe-haven appeal and rising macroeconomic headwinds.
Mintexplains what this nascent war and the resulting supply shocks mean for your portfolio and the road ahead for Indian equities.
How has the market behaved?
Since the Iran-US war began on 28 February, equity markets worldwide have fallen.
The Nifty 50 index declined 2.1% between 28 February and 4 March, while the Nikkei fell 5.5%, the Hang Seng 4.5%, and the Kospi 8.9% over the same period. In the US, the Dow Jones and the S&P 500 have shed 0.39% and 0.12%, respectively.
Indian indices have recovered some of their losses today (5 March), with Nifty 50 up around0.5%and the Sensex up around0.45% at 2:30 pm IST.
How have macro indicators moved?
The rupee fell to a record low of 92.32 per US dollar on 4 March. Rising uncertainty has pushed investors toward safer dollar assets, strengthening the global reserve currency and putting pressure on emerging market currencies.
Simultaneously, the escalating conflict and the Strait of Hormuz blockade caused crude oil prices to jump to $83.18 on 5 March, up 12% from 27 February.
Anindya Banerjee, head of commodity and currency research at Kotak Securities, said, “We expect the RBI to intervene periodically to contain excessive volatility and prevent disorderly depreciation in the rupee. However, as long as crude oil prices remain elevated, the rupee could continue to face depreciation pressures.”
The safe-haven asset MCX Gold jumped 5% between 27 February and 2 March, but settled 3% lower between 2 and 4 March. Gold prices are currently caught between competing forces: its role as a safe haven amid war uncertainty versus macroeconomic headwinds from a strengthening dollar and elevated yields, according to NS Ramaswamy, head of commodities and CRM at Ventura.
Where do oil companies stand?
For now, Indian oil marketing companies have an inventory of about 30 to 35 days of crude oil and 20 to 30 days of refined products. LPG stocks are more vulnerable, with only about 15 days of supply. If the blockade of the Strait of Hormuz continues, refinery operations and fuel supply could face disruptions in the coming weeks.
For oil marketing companies (OMCs), higher crude procurement costs, elevated freight and insurance expenses, and longer shipping routes could compress margins and weaken earnings visibility.
Apart from OMCs, Indian chemical manufacturers will see some supply shocks as they rely on GCC countries for imports of crude-based raw materials such as propylene, xylene, methanol, styrene, polymers and others. Increased crude prices will lead to higher fuel costs for airline companies, too.
How have foreign institutional investors reacted?
Since 2 March, foreign institutional investors (FIIs) have net sold shares worth ₹11,740 crore, while domestic institutional investors have net bought ₹20,661 crore in the secondary market. After two consecutive months of selling, FIIs had briefly turned net buyers in February, purchasing shares worth ₹17,147 crore.
A stronger dollar, driven by rising geopolitical tensions in the Middle East, could affect capital flows into emerging markets. If the dollar remains strong, India could also see some foreign outflows as part of broader emerging-market trends, said Chirag Mehta, CIO at Quantum Mutual Fund.
What lies ahead for Indian markets?
Volatility is likely to continue in the near term, and markets may experience some relief if the Strait of Hormuz reopens. Any breach below the 24,300 zone for Nifty 50 could pave the way for further downside to 24,050-23,900, experts said.
However, the medium-term outlook for Indian markets remains constructive. Atul Bhole of Kotak Mahindra Asset Management Company, said, “Valuations have corrected and Nifty earnings are expected to rebound to around 14-15%. Strong government capex, tax cuts and liquidity measures that support consumption strengthen the medium-term outlook for India.”
If the equity allocation in investors’ portfolios has fallen because of the recent correction, they should consider topping it up, said Rohit Sarin, co-founder of Client Associates.