Indian equity markets started the day on a cautious footing, but the mood quickly turned sour as a broad-based sell-off gathered pace. Benchmark indices fell nearly 2%, closing at a 10-month low, quickly erasing the optimism seen in the previous session.
Early hopes that might cool soon faded as reports of fresh military activity surfaced and concerns about the Strait of Hormuz being shut down returned.
Wednesday’s sell-off wiped out ₹5.48 trillion in BSE market capitalization in a single session. Since the US-Iran war began, BSE-listed companies have together seen nearly ₹21.95 trillion of investor wealth evaporate, underscoring the toll the geopolitical turmoil has taken on the markets.
According to BSE provisional data, foreign institutional investors (FIIs) net sold Indian equities worth ₹6,267 crore, whereas domestic institutional investors (DIIs) net purchased shares of ₹4,966 crore.
The renewed uncertainty rippled across global markets, nudging investors into a more defensive, risk-off stance. Reflecting the rising anxiety, the market’s fear gauge, the India VIX, jumped over 11%, signalling a sharp uptick in volatility expectations. The volatility index rose steadily and closed at 11.4 on Wednesday.
On Wednesday, Nifty 50 closed 1.6% lower at 23,866.85, and S&P BSE Sensex ended down 1.7% at 76,863.71.
Financials and automobiles led the selling. Bajaj Finance (-4.9%), Axis Bank (-4.6%), Bajaj Finserv (-3.8%) were the biggest laggards, followed by Eicher Motors (-3.7%), M&M (-3.5%), and Bajaj Auto (-3.0%).
Among National Stock Exchange (NSE) sector indices, Nifty Auto was the worst performer, down 3.15%, while Nifty Private Bank was the second-worst performer, falling 2.4% on Wednesday.
However, losses in the broader market were comparatively lower, with the Nifty Midcap 100 and Nifty Smallcap 250 falling 1.3% and 0.4%, respectively, suggesting bargain hunting at lower levels.
The at 92.04 to the dollar, weakening from Tuesday’s close of 91.80.
Hopes for a short-term disruption
Meanwhile, Brent crude spot rose 0.3% to $90.81 per barrel on Wednesday. Intraday, oil prices rallied 5%.
“Equity markets tend to reprice swiftly in response, particularly in oil-sensitive sectors such as aviation, paints, cement, and chemicals,” said Devarsh Vakil, head of Prime Research, HDFC Securities.
Indian markets are likely to remain under pressure until there are credible signs of de-escalation and crude oil prices retreat meaningfully from elevated levels, he added.
Vakil said if this proves to be a temporary disruption, companies may absorb the impact. But if the war persists beyond a few weeks, it will pose a serious challenge.
Higher crude oil and gas prices are for most Indian companies, as India imports over 85% of its energy needs, driving up input costs for sectors such as aviation, paints, tyres, chemicals, and logistics. These elevated costs often cannot be fully passed on to consumers due to weak pricing power amid slowing demand, leading analysts to slash earnings forecasts across autos, fast-moving consumer goods (FMCG), and industrials, he explained.
Despite 125 basis points of prior rate cuts and keeping rates unchanged in February, Nomura, in an 11 March report, noted that the Reserve Bank of India’s shift toward easier liquidity suggests room for further easing.
“That said, elevated oil prices since then are likely to dampen this dovishness, and we expect a policy hold from hereon.”
The brokerage said higher crude oil prices and energy disruptions pose upside risks to inflation, the fiscal deficit and the current account deficit, while also threatening growth. On the other hand, potential positives include an influx of capital, a recovery in exports, and a continued focus on reforms.
Not just the Indian economy, but the West Asia conflict poses wide-ranging risks to the listed universe too.
Opportunity for some
At the same time, some market participants noted that investors may increase allocations to select sectors such as upstream oil and gas producers, defence, shipping, and renewables or electric vehicles, which could potentially benefit from the evolving crisis.
In such a volatile and uncertain environment, Vakil said leveraged positions should be appropriately hedged.
But, “sharp market dislocations—when they arrive—historically offer compelling entry points for long-term investors with capital to deploy, and an opportunity to accumulate quality ideas at more attractive valuations,” he added.
Meanwhile, Asian markets saw pockets of buying, but European markets declined.
Rahul Singh, chief investment officer of equities at Tata Asset Management, noted that West Asia tensions have raised the risk premium for Indian equities, fuelled by concerns over rising crude prices and a weakening rupee. “However, valuations have become more reasonable with the Nifty trading around 20 times earnings.”
Despite global volatility, the consumer and pharma sectors remain resilient, while metals and energy benefit from higher commodity prices, he said. Improving credit growth supports banks, with Nifty 50 earnings projected to stay healthy at 15–17% through FY27.