Indian benchmark indices have seen sharp swings as global concerns weigh on risk appetite. Heightened tensions in the Middle East have contributed to a notable decline in domestic equities by disrupting global energy markets and pushing crude oil prices materially higher (at one point rising about 30% to above $110 per barrel). A key risk is potential disruption in the Strait of Hormuz, through which an estimated 20%–30% of global oil shipments transit. The implications for India are significant, given that a large share of its energy imports route through this corridor. At present, government reserves are estimated at roughly two months of crude and less than one month of gas. Prolonged disruption could therefore raise energy costs, widen the current account deficit, and add pressure on the INR, inflation, monetary policy, and business and household activity. These developments have weighed on investor sentiment, contributing to FII selling and softer domestic buying.
Underperforming sectors
Key sectoral underperformers have included autos, banks, realty, and metals. Weakness in banking and auto stocks reflects a broader risk-off environment and associated FII outflows. Banks have also faced additional pressure amid concerns about potential asset-quality risks linked to Maharashtra’s farm-loan waivers, as well as elevated foreign ownership that has amplified selling. Auto stocks are contending with higher energy and commodity costs, potential gas-supply disruptions, and supply-chain uncertainty. Realty has softened on concerns about IT-sector hiring trends affecting housing demand in major technology hubs, alongside weak sector momentum. Rising inflation risks and the prospect of tighter RBI policy have further weighed on these rate-sensitive segments.
Other high-impact areas include aviation, where turbine fuel typically accounts for nearly one-third of operating costs. Industries dependent on crude-linked inputs—such as paint and chemical manufacturers—are also exposed, as many key raw materials are oil derivatives. In addition, sectors such as logistics, travel, and restaurants may face challenges from higher transportation costs, potential gas constraints, and limited ability to fully pass through cost inflation to customers.
By contrast, the power sector may see stronger demand, supported by weather-related factors and relatively stable fundamentals during periods of heightened volatility. The IMD has forecast above-normal temperatures and a higher number of heatwave days during March–May 2026, which typically increases electricity consumption, particularly from cooling demand. Consequently, power generation and distribution companies may benefit from higher offtake and improved plant load factors in the early part of FY27. As volatility moderates and demand linked to cooling sector realises such companies will also benefit in the future. The sugar sector is also drawing interest, as higher ethanol blending targets could increase offtake from oil marketing companies and improve realisations. Pharmaceuticals may remain resilient as a defensive allocation, with additional support from INR depreciation.
Another notable development is the shift in the valuation backdrop. After a prolonged period of re-rating, Indian equities have undergone a meaningful correction, bringing valuations to 10% below the five-year average. This adjustment has begun to attract selective institutional interest; however, positioning remains cautious amid elevated geopolitical risk and uncertainty around global liquidity. As a result, institutions are maintaining higher cash allocations and adopting diversified approaches while awaiting clearer signals on the macroeconomic outlook.
Despite near-term uncertainty, India’s long-term investment narrative remains intact. Structural growth drivers—rising domestic consumption, continued infrastructure investment, digital transformation across industries, and improving corporate balance sheets—continue to support the medium- to long-term outlook. Government policy support for manufacturing, the energy transition, and infrastructure development provides additional tailwinds for economic expansion. The recent sell-off appears to have been amplified by the continued lack of progress toward de-escalation, leading traders to reduce short-term positions ahead of the weekend. Elevated volatility also triggered higher margin requirements and accelerated derivatives (F&O) position unwinds.
Historically, war-related corrections have at times created entry points for long-term investors—for example, during the Gulf War (1990) and more recent geopolitical shocks such as the Israel–Hamas conflict (2023) and the June 2025 strikes on Iran’s nuclear facilities. From a technical perspective, the Nifty fell below the key 24,000 level during the week. A prior intermediate support zone was near 23,500, with the next major support projected far at closer to 22,000—implying elevated near-term downside risk. With Friday’s close at 23,151, the index is trading between these levels and may attract selective value buying given oversold conditions. A sustained rebound, however, would require a meaningful shift in the geopolitical narrative, assuming the conflict remains contained and does not extend over the coming months.
The author Vinod Nair is the head of research at Geojit Investments.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.