Nifty 50 Falls 280 Points Amid US-Israel-Iran Conflict

On Monday, the Nifty 50 was down by 1.14 percent, touching a day’s low of 24,824.85 from the previous closing of 25,112.40 as escalating Middle East tensions triggered global markets. This sell-off follows U.S.-led airstrikes on Iranian nuclear facilities over the weekend, marking the Western military interventions against Iran since 1979. Here are some of the impacts from the conflict that can spread across the world.

1) Oil Price Surge and Supply Risks

Following the news of the US strike, Brent crude prices have been rising since the start of the conflict and are currently trading around $78.2 per barrel, marking a five-month peak. This rise comes as Iran has threatened to block the Strait of Hormuz, a chokepoint for 20 percent of global oil shipments. India, which imports more than 80 percent of its crude, faces pressure on inflation and fiscal risks from high prices. However, Union Petroleum Minister Hardeep Singh Puri said that they have diversified the Oil sources and are not concentrated in the Strait of Hormuz, with sufficient stockpiles there. But continued war can increase the risk through the supply of oil.

2) Indian Rupee Depreciation

The USD/INR rate hit 87.02, depreciating 0.52% today and 1.12 percent year-to-date, with analysts forecasting it to be around 87. The rupee's weakness is due to various factors like India’s current account deficit, foreign capital flows, and the strengthening of the dollar. Higher oil import costs, which constitute a major portion of India’s import bill, put pressure on the currency. The RBI intervention may limit excess volatility.

3) Rise in Material Costs and Inflation

A sustained increase in crude prices can directly impact the production expenses for plastics, chemicals, and transportation while squeezing corporate margins. Supply chain disruptions like the Red Sea route have already increased shipping insurance premiums and delivery times. These factors, combined with trade bottlenecks with Iran, Israel, Iraq, and Syria, pose a risk of increasing input-cost inflation.

4) Bond Market Pressure

Government bonds may face selling pressure as higher oil prices threaten to increase the fiscal deficit through a rise in fuel subsidies. The yield curve may rise if inflation expectations increase, thus complicating the RBI’s monetary policy stance. Sovereign debt outflows are likely as global investors shift to safer assets like U.S. Treasuries in times of geopolitical uncertainty.

5) FII Flows to Emerging Markets

Foreign institutional investors (FIIs) are likely to withdraw funds from Indian equities, mirroring a broader retreat from emerging markets as they look to park their funds in advanced economies like the U.S. However, the FIIs have kept inflows positive despite the conflict tensions.

The conflict’s escalation has increased near-term headwinds for Indian markets, with oil prices and currency stability acting as critical factors. The Reserve Bank of India’s intervention in forex markets and strategic crude procurement remain key factors against prolonged disruption.