Stock Market Reacts to US-Iran Tensions: Has Indian Market Factored in Conflict Risks?

Indian Stock Market Faces Uncertainty Amid US-Iran War Tensions

The Indian stock market has been on a rollercoaster ride since the outbreak of the US-Iran war, with the Nifty 50 index staging a strong recovery from 22,500 levels before slipping below 24,000 in the last three straight sessions. The Bank Nifty index reclaimed the psychological 56,000 level, while the 50-stock index established a strong base around 24,000.

According to stock market experts, the Indian market has partially priced in the US-Iran war, but there is still a possibility of more downside if the conflict escalates. The initial shock has been absorbed through a meaningful correction, but current price action suggests that the market is still reacting to headlines rather than fully discounting worst-case risks.

Crude Oil Price Movement in Focus

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The real pressure point remains the crude oil price rise, with Brent crude oil price holding above $100. For every $10 rise in oil prices, India's current account deficit widens materially, which directly feeds into currency weakness. The rupee touching around ₹94.85 per dollar reflects that stress, alongside continued foreign outflows.

Valuations and Outlook

Expecting more pain for the Nifty 50, Sensex, and other major Indian indices, if there is further escalation in the US-Iran war, Nitant Darekar, Research Analyst at Bonanza, said that the underlying shock is far from priced in. The Brent-linked Indian crude basket is at $100.4/bbl versus $69 in February (+45%), the Rupee has weakened about 2%, and India VIX is rising.

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Valuations have corrected, with the Nifty now trading near 19x earnings versus its long-term average of around 22x. That brings the market closer to fair value, but not necessarily to a deep-value zone, especially given rising earnings risks. Global brokerages like HSBC have already flagged this by moving to an underweight stance, citing potential delays in earnings growth due to persistent energy-driven inflation.

Market Behaviour and Outlook

From a market-behaviour standpoint, the trend still reflects a sell-on-rise structure. Rallies driven by temporary geopolitical relief or ceasefire headlines are not sustaining, indicating that institutional conviction remains cautious. FII selling continues to be a structural overhang, limiting upside follow-through.

Oil-sensitive sectors like aviation, consumption, and IT are under pressure, while defensives and commodity-linked pockets are relatively resilient. This suggests the market is selectively pricing risk rather than fully capitulating.

Outlook for Nifty 50 and Sensex

Speaking on the outlook of the Nifty 50 and the Sensex today, Amol Athawale, VP — Technical Research at Kotak Securities, said that on the weekly chart, the Nifty 50 and the 30-stock index Sensex have formed a bearish candle, and on daily charts, a reversal formation has appeared, which supports further weakness from the current levels.

"We are of the view that 24,000/77,000 would act as a crucial reference point for traders. Below this level, the correction wave is likely to continue, with the index potentially slipping to the 20-day SMA or 23,635/76,000. Further downside could also continue, dragging the index to the 23,500-23,450/75,700-75,500 range," said Amol Athawale.

Outlook for Bank Nifty

For Bank Nifty, as long as it is trading below the 50-day SMA or 56,800, a weak formation is likely to continue. On the downside, it could retest the 55,000–54,750 range. Conversely, above the 50-day SMA of 56,800, the next resistance for Bank Nifty would be in the 57,500–58,000 range.