In the weeks following the escalation, Indian equities entered a sharp riskoff phase, with benchmark indices correcting as much as 11 per cent amid a 45 per cent surge in crude oil prices, rupee weakness, and persistent foreign portfolio investor (FPI) outflows.
The spike in oil and gas prices — driven by the disruption in the Strait of Hormuz — emerged as the key overhang, stoking concerns around imported inflation, tighter financial conditions, and a potential hit to corporate earnings.
The rupee weakened from around 91 to a US dollar before the conflict to breach 95 intraday at its weakest. The India VIX more than doubled during this period, reflecting heightened investor anxiety.
Other asset classes offered limited refuge. Rising bond yields eroded fixed-income appeal, while declines in gold and silver prices reduced traditional safe-haven support. Globally, metal prices slipped, while the dollar index inched higher.
FPIs remained consistent sellers, offloading nearly ₹1.6 trillion of Indian equities in what was among their most brutal month-long selloffs. Domestic institutional investors (DIIs), however, provided a crucial counterbalance, absorbing much of the selling and preventing a sharper market decline.
Sectorally, the pain was broad-based, with rate-sensitive segments such as financials, autos, and real estate bearing the brunt. Broader markets also saw meaningful declines, underscoring risk-aversion among retail and high-beta investors.
Against this backdrop, Wednesday’s sharp rally marks a sentiment-driven turnaround, aided by easing oil prices and hopes of de-escalation. However, with geopolitical risks still lingering and energy markets yet to fully stabilise, market participants remain cautious about the durability of the recovery.
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