US bombs Iran nuclear facilities: Impact on stocks, bonds, oil decoded here

Following Israel's attack on Iran's nuclear sites on 13 June, the US bombed three nuclear sites in Iran over the weekend. This military strike was widely anticipated by the market after Mr. Trump's recent warnings. 

 

The conflict could escalate further, as the US and Israel may push for the fall of Khamenei's regime in Iran, as it may retaliate to survive.

 

Brent crude oil price is already up about 18 per cent in the past month, fearing escalation, but still remains below $80/bbl. Despite Iran being a heavily sanctioned country, it is estimated that Iran produces 3.0 to 4.0 million barrels of oil (world oil output of 103 million barrels last year), and it largely exports it to China. Iran warned that it may close the Strait of Hormuz (~26 per cent of oil trade), attack US military installations in the region, and take other military and diplomatic actions.   Check Markets Latest Updates Today LIVE

 

We believe a large part of the impact on oil prices has already been reflected; however, oil may see a significant spike even from this level if Iran is able to choke major trade routes or Russia gets directly involved in the conflict. In the medium-to-long term, the supply response may help bring down oil prices, in our view.

 

Wider Geopolitical Conflict Possible but Probability is Low: Russia is already fully occupied with Ukraine and has withdrawn its troops from Syria, resulting in the downfall of Bashar al-Assad's regime, which Russia long supported. The possibility of China or other Middle Eastern countries directly involving themselves in the conflict is also low, in our view.

 

Impact on Indian Financial Markets: India is one of the most vulnerable countries with respect to oil price movements, given our import bill in FY 2025 reached $137 billion (3.7 per cent of GDP). Nevertheless, India's susceptibility to oil prices has reduced drastically recently, given India's solid macroeconomic fundamentals. Hence, overall India's macro and financial market performance may come under pressure, but it may not deteriorate significantly.

 

The INR has already started to come under pressure despite the Dollar Index remaining below 99 levels and closer to 52-week low levels. We expect the INR to fall further against major currencies in coming days, and RBI intervention will be keenly watched.

 

The Indian bond market could see some yield spike, especially longer-tenure bonds, which could offer a buying opportunity, as we believe yields could settle at lower levels in the medium to long term.

 

It is likely that global equity markets may not react much to this conflict, as policies from central banks remain well supportive, including in India.

 

Indian equities may see some knee-jerk reaction, and sectors like defence, IT, and pharma may outperform, while banks, logistics, and interest-rate-sensitive sectors like NBFC and real estate may underperform in the near term.

 

However, we continue to like interest-rate-sensitive names, and any major correction could offer a buying opportunity.

 

Our positive view on gold continues. Despite escalating geopolitical concerns, the dollar hasn't seen any major safe-haven buying, which makes gold even more attractive.

 

(Disclaimer: Jitendra Gohil is a chief Investment strategist at Kotak Alternate Asset Managers. Views expressed are his own.)