According to the report, markets do not conflict in isolation. They evaluate economic transactions. In the case of India, this channel passes through crude oil prices, inflation, rupee, interest rates and finally equity values. “When geopolitical headlines hit, markets don’t price war. They price duration, confusion, and secondary spillovers,” Marksmith said.
The contrast with 1991 shows how much the macro background has changed. During the Gulf War, the price of crude oil rose from $17 to $36 per barrel. India’s foreign exchange reserves fell to $1.1 billion, covering only three weeks of imports. In July 1991, the rupee depreciated by 18 percent. This event turned into a balance of payments crisis rather than a market adjustment.
Today, macro buffers are powerful. India has significant foreign exchange reserves and the Reserve Bank of India has considerable flexibility to manage currency volatility. The report describes this transition as a movement from fragility to resilience.
Subsequent geopolitical events supported this shift. During the Kargil war in 1999, Nifty’s decline was around 0.8%. In the next three months, the index grew by nearly 32%, and in the following year by nearly 29%. Despite high war-related costs and inflationary pressures, income and growth expectations remain stable.
In more recent cases, the recovery window has become even shorter. After the Uri surgical strikes in September 2016, the initial market decline was around 2% and recovered within a few days. After the Pulwama attack in February 2019, the market reaction was limited.
After the Balakot airstrike, when Nifty fell between 1.8% and 3.5%, there was a recovery in less than two weeks. In May 2025, during the Sindur operation, the decline was about 0.59% and the index recovered on the same day. MarketSmith attributes the rapid normalization to strong domestic liquidity, improving data flows and better macro buffers. “Recovery windows are under pressure, as both market structure and data velocity have changed,” the report said.
Current tensions with Iran are structurally different from border incidents with Pakistan. The concern is with energy logistics rather than regional military escalation. About 20% of the world’s oil passes through the Strait of Hormuz and about 40% of India’s crude imports are connected through this route. The primary risk is the continued disruption of physical oil supplies.
The report highlights the high sensitivity of crude prices. A $10 per barrel increase in oil can add 0.5% to 1% to consumer inflation. Every dollar increase in oil prices increases India’s annual import bill by nearly $2 billion. A sustained increase of $10 could widen the current account deficit from 0.3% to 0.4% of GDP. “The market is not afraid of missiles in isolation. It is afraid of sticky inflation prints, weakening INR, and stalling prices,” the market said.
Analysis of this scenario shows that the duration is more important than the initial spike. At $75 Brent, inflation remains stable and the current account deficit is around 1% of GDP. At $85, the deficit could widen to 1.4-1.5%, rising about 50 basis points above inflation.
At $100 or higher, the deficit could move toward 2-2.5% and inflation could rise by 150 basis points. Only in the longer-term scenario above $120 do pressures reach systemic levels, with the current account deficit exceeding 3% of GDP and inflationary pressures mounting.
Another structural change is domestic liquidity. A monthly systematic investment plan of over Rs 31,000 crore provides continuous support to the markets. Domestic institutional investors are now blocking outward outflows more effectively than in previous periods. As the report notes, domestic flows are no longer insignificant; They form a stable base for the market.
Sectoral impacts vary. Rising crude oil prices put pressure on aviation, chemicals and oil marketing companies if retail price pass-through is delayed. Upstream energy companies benefit from higher earnings. Defensive stocks often see sentiment support during high security periods, while gold-linked assets can gain during periods of risk and rupee weakness.
MarketSmith’s investment view is that geopolitical events usually create short-term volatility. “Geopolitical shocks are usually short-term volatility events. Only persistent oil disruptions change the medium-term trend.” It added that investors should track crude price duration, rupee movement, inflation expectations and policy response and not just react to headlines.
The broader conclusion is that while Indian markets remain sensitive to oil and currency dynamics, they are better equipped to absorb external shocks than in previous decades. The key variable remains crude oil and the extent to which prices continue to rise.
((rejection: The recommendations, suggestions, opinions and views given by the experts are their own. (It does not represent the views of The Economic Times.)
