The Indian stock market correction could deepen and the benchmark Nifty 50 potentially crash towards 21,000 level if crude oil prices remain around $100 per barrel for the next three to four months amid the prolonged US-Iran war, according to Seshadri Sen, Head Of Research And Strategist at Emkay Global Financial Services.
However, Sen believes the correction would be temporary. Once crude oil prices moderate to around $70 per barrel, India’s economy and corporate earnings are expected to recover, which could present an attractive entry opportunity for investors with a one-year or longer investment horizon.
Oil shock amid escalating conflict
The shows no immediate signs of easing, with Iran effectively shutting the Strait of Hormuz — a key transit point for crude oil and gas exports from the Middle East. As a result, Brent crude oil prices are hovering close to $100 per barrel.
While a negotiated settlement remains possible, analysts fear that the situation could deteriorate further before both sides feel compelled to negotiate. At this stage, though, even a simple ceasefire could trigger a crude sell-off and market rally.
Impact on India
The prolonged US-Iran war in the Gulf could keep elevated for longer, with $100 per barrel for three to four months appearing worryingly probable. According to Sen, sustained high oil prices could negatively affect several aspects of the Indian economy.
“This would jolt India’s growth, macroeconomic stability, and corporate earnings, with LPG shortages potentially causing serious disruptions to daily life. We also fear second-order challenges arising from a global growth-inflation shock. This scenario is not fully priced in, and we see around 10% further downside risk for the Nifty in the absence of a détente,” Sen said.
He expects earnings per share (EPS) for the to be downgraded by about 1.7%, assuming an impact similar to that of the Russia–Ukraine war during FY22 and FY23. An additional 1–2% downgrade could arise from second-order effects, with mid-cap and small-cap companies likely to face greater earnings pressure.
Financial market risks
An extended conflict could also create broader stress across India’s financial markets. While the Reserve Bank of India has so far limited the damage through interventions in the foreign exchange and , Sen cautioned that such measures may not be sustainable if the situation persists.
“In this scenario, we fear a domino effect – rising CAD, weakness in remittances, capital outflows from equity and debt markets, and liquidity tightness,” he said.
Sen also warned that the Indian rupee could weaken to 95 per US dollar, while the 10-year government bond yield could rise to around 7%, accompanied by widening corporate bond spreads.
Sectoral impact
According to Emkay Global, elevated prices would impact corporate earnings through two primary channels: demand destruction in both domestic and global markets, and margin pressure due to higher input costs.
While no sector would be entirely immune, the brokerage believes sectors such as technology, pharmaceuticals, metals, and power could remain relatively resilient. In contrast, oil marketing companies, utilities, airlines, and automobile manufacturers are likely to be more exposed to the impact of higher oil prices.
Sen noted that banks and non-banking financial companies (NBFCs) appear to have been “unfairly punished” during the correction, presenting a potential entry opportunity even before oil prices normalise.
Opportunities among beaten-down stocks
Sen believes that once crude oil prices stabilise around $70 per barrel, India’s economic growth and corporate earnings should recover.
From a one-year-plus investment perspective, he sees select stocks that have already corrected sharply as attractive opportunities. These include , Bajaj Finserv, , and , which he described as compelling “fallen angels” following the recent stock market sell-off.
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