Turbulence Beyond Borders: The Ripple Effects of the US–Israel– Iran Conflict on Indian Financial Markets

The ongoing geopolitical conflict involving the US, Israel, and Iran has sent shockwaves across the global and India is no exception. As a major emerging economy heavily dependent on imports—especially crude oil—India’s stock market reacts swiftly to such global uncertainties.

One of the most immediate effects of the conflict has been heightened volatility in benchmark indices like the Sensex and Nifty 50. Nifty 50 has fallen from 24865.70 to 22819.6 during the month of March 2026 registering a decline of 8.23%1 . Sharp sell-offs have wiped out significant investor wealth within days, driven largely by panic sentiment and risk aversion. During times of war, global investors tend to pull money out of emerging markets and move towards safer assets such as gold and Treasury bonds. This has led to substantial foreign institutional investor (FII) outflows. According to Money Control Stats during the month of March 2026 approximately net ₹ 95,000 crore withdrawn from Indian equity and debt market by FIIs which was highest in the last one year2 .

Surge in oil price is another critical factor that is amplifying the market downturn. As on March 26,2026, one barrel of Brent crude oil was costing $112.57 which was around $70 per barrel before the war outbreak3 . The share of oil in total imports of India is around one-third. The present oil crisis may cause significant financial strain on Indian economy in form of increased inflation and fiscal deficit. Sectors (Aviation, Paints and Automobiles) that are dealing with inputs linked to oil will get affected badly if supply of oil crisis continues.

Another major consequence of this geopolitical conflict is Currency depreciation. The Indian rupee is weakening against the U.S. dollar as capital flows out and demand for the dollar rises. The USD/INR was at around 91 before the war breakout which was increased to 94.782 and registered currency depreciation of around 4% during March 20264 . While a weaker rupee increases import costs, it provides some relief to export-oriented sectors such as information technology and pharmaceuticals.

Investors at this prevailing situation understand the macroeconomic context and should look for investment in those sectors that are fundamentally strong and resilient. Diversification, risk management, and informed decision-making in investing can help investors to navigate volatility effectively.

References:

1. https://www.nseindia.com/index-tracker/NIFTY%2050
2. https://www.moneycontrol.com/markets/fii-dii-data/fii-sebi/
3. https://oilprice.com/oil-price-charts/#Brent-Crude
4. https://in.investing.com/currencies/usd-inr-historical-data