Escalating tensions in West Asia deepened the rout in Indian equities on Wednesday, as elevated oil prices stoked concerns about inflation, fiscal pressures and a broader slowdown in global growth.
Crude oil remained within reach of multi-month highs as the US-Israeli conflict with Iran continued to disrupt energy flows. Prices pared gains following reports about Iranian operatives seeking talks with Washington. This slightly tempered risk aversion as Wall Street opened marginally higher and European markets traded in positive territory.
With pressure on the West Asia supply chain weighing on market sentiment, the Sensex fell 1.4 per cent, or 1,123 points, to 79,116, its lowest close since April 17, 2025. The Nifty 50 declined 1.55 per cent, or 385 points, to 24,481, its weakest finish since August 29, 2025. Intraday, the Sensex dropped to 78,443 and the Nifty to 24,305.
The India VIX, often described as the market’s fear gauge, jumped 23 per cent to 21.6, its highest level since early May 2025, signalling a marked rise in investor anxiety.
Over the past three sessions, the indices have shed about 4 per cent and ₹21.5 trillion ($461 billion) in investor wealth has been erased. India’s total market capitalisation has now fallen to ₹447 trillion ($4.85 trillion).
Wednesday’s losses were broad-based: The Nifty Midcap 100 and Nifty Smallcap 100 each fell more than 2 per cent. With the exception of IT, all NSE sectoral indices ended lower, led by metals (down 4 per cent) and oil and gas (down 3.1 per cent).
The turbulence in Mumbai echoed weakness across Asia. In Seoul, the Kospi tumbled 12 per cent, its steepest single-day fall on record, extending a two-day decline of more than 18 per cent as the won slid to a 17-year low. South Korea’s heavy reliance on West Asian crude has left its markets particularly exposed.
Japan’s Nikkei 225 dropped 3.6 per cent, while Taiwan’s Taiex fell 4.3 per cent, as investors retreated from semiconductor stocks that had been among the year’s most crowded trades.
Gold approached $5,200 an ounce on safe-haven demand.
With India importing nearly 80 per cent of its crude requirements, a sustained rise in oil prices threatens to widen the current account deficit and complicate the inflation outlook.
Heightened uncertainty has prompted foreign investors to pare exposure. Foreign portfolio investors (FPIs) sold ₹8,753 crore of equities on Wednesday, while domestic institutional investors purchased ₹12,068 crore, partly cushioning the slide. Net overseas outflows have accelerated in recent sessions, reflecting a broader shift towards risk aversion.
Ridham Desai, managing director and chief India equity strategist at Morgan Stanley, said the geopolitical shock had added a fresh layer of uncertainty to markets already contending with stretched global valuations and uneven growth. “Geopolitical tensions in West Asia have created a new challenge for the market. While India’s oil intensity is much lower than before, the country remains heavily dependent on imports, and uncertainty around logistics and production can hurt,” he said.
Desai, however, noted that the correction had rendered valuations increasingly compelling. “The trailing 12-month performance is almost the worst in history and relative valuations are at previous troughs. India’s share in profits exceeds its index weight by almost the highest margin ever and the Sensex is the cheapest in gold terms,” he said.
Stocks with direct or indirect exposure to West Asia and to energy costs bore the brunt of the selling. Engineering group Larsen & Toubro, which has significant projects in the region, fell 4.5 per cent after a near 5 per cent drop in the previous session.
Oil marketing companies Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Indian Oil Corporation each declined about 5 per cent. Airline and hotel stocks also weakened as carriers cancelled flights to parts of West Asia and Europe.
“The Iran crisis transmits to global equities through three principal channels -- a rise in equity risk premia, energy market disruption and foreign exchange adjustments,” said Hou Wey Fook, chief investment officer at DBS. “The initial reaction is typically a repricing of uncertainty, with investors demanding higher compensation for geopolitical risk and volatility rising.”
Historically, he added, geopolitical shocks have tended to exert sharp but short-lived effects, with markets stabilising as attention returns to growth and earnings.
 "West Asia conflict continues to roil mkts as Sensex sinks to 11-month low")
