Israel-Iran Conflict: After a knee-jerk dip last week following news of Israeli airstrikes on Iran, Indian equity markets bounced back sharply, only to wobble again as tensions refused to cool. The immediate fallout was sharp. On June 14, 2025, the Sensex plunged 573 points to close at 81,118.60, while the Nifty shed nearly 170 points, ending at 24,718.60.
Markets clawed back some ground over the weekend. On June 16, the Sensex rallied 678 points, its strongest one-day gain this month, boosted by bargain buying and hopes that the worst was over. But that optimism faded quickly. By June 17, with tensions still simmering and fresh US warnings stoking risk-off sentiment, the indices turned red again. The Sensex dropped 213 points to 81,583, and the Nifty lost 93 points to finish at 24,853.
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Meanwhile, Brent crude edged past $74 a barrel, and the rupee fell to 86.24 against the dollar, its lowest level since April 2025, reflecting concerns over energy supply chains in the Gulf.
Meanwhile, broader sell-off was led by pharmaceutical, metal, and energy stocks, while IT was the lone bright spot.
The Nifty Pharma index fell 1.89 per cent, tracking a broader decline in the healthcare index, which shed nearly 1.8 per cent. Metal stocks also faced pressure, with the Nifty Metal dropping 1.43 per cent, while the PSU Bank, Auto, and Realty indices each ended lower by over half a percent.
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Top laggards on the Nifty included Adani Enterprises, Dr. Reddy’s Laboratories, Sun Pharma, ONGC, and Eicher Motors. Elsewhere, Tech Mahindra, Infosys, Asian Paints, TCS, and Maruti Suzuki managed to post gains, lifting the Nifty IT index by 0.72 per cent.
The rupee closed weaker by 18 paise at 86.24 per dollar, its lowest since April 9, 2025, as rising crude prices and risk-off sentiment weighed on the currency. Brent crude climbed 1.64 per cent to $74.43 a barrel, while WTI rose 1.56 per cent to $72.89, amid concerns about potential disruptions near the Strait of Hormuz.
Has the Market Fully Priced In the Iran-Israel Conflict? Experts Say No
Despite the market’s resilience in the face of mounting geopolitical risks, analysts believe the full impact of the Iran-Israel conflict has far from being factored in.
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Vaqarjaved Khan, senior fundamental analyst at Angel One, told Outlook Money that while recent flare-ups between Iran and Israel did cause brief volatility, a more severe escalation could upend capital flows and crude prices.
“If the situation worsens and turns into a broader regional conflict, it could lead to volatility in crude oil prices and capital flows out of riskier assets. Till complete de-escalation is confirmed, it remains a wait-and-watch scenario,” says Khan.
Utkarsh Sinha, managing director of Bexley Advisors, adds, “Geopolitical risk is rarely static. Any escalation that disrupts energy supply chains or trade corridors like the Strait of Hormuz could trigger global risk-off sentiment, including in India.”
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Sectors To Be Impacted By Israel-Iran Conflict
Sectors with high sensitivity to crude prices remain the most vulnerable. Khan pointed out that aviation, oil marketing companies (OMCs), and paints are likely to face margin pressure if oil prices remain elevated. “OMCs may not be able to fully pass on the impact to end users, leading to erosion in profits. Jet fuel makes up nearly 40 per cent of aviation costs, so any spike hits the bottom line directly. Likewise, paint companies, which derive 50 per cent of input costs from crude derivatives, could see a hit to margins,” he says.
Sneha Poddar, vice president – research, wealth management at Motilal Oswal Financial Services, echoed the same concerns.
“Aviation, OMCs, and FMCG are among the most exposed sectors. Elevated ATF prices and restricted airspace routes would directly impact airlines. OMCs may face regulatory constraints on price hikes. For FMCG, cost pressures from packaging and logistics could hurt margins, especially in rural markets,” Poddar adds.
Saurabh Jain, head, equity research - fundamentals, SMC Global Research said that if tensions in the Middle East flare up again, several sectors could come under pressure. Aviation is highly exposed due to its sensitivity to fuel cost volatility; with already tight margins, any sustained rise in crude oil prices would directly impact profitability.
FMCG companies face indirect exposure through higher input costs, including packaging and transportation.
“This could further squeeze margins, especially if inflation rises while rural demand stays weak. Infrastructure and cement sectors, which are both energy- and logistics-intensive, may also suffer from rising costs and currency depreciation. Additionally, logistics and shipping companies could be hit hard if supply routes near the Suez Canal or Red Sea are disrupted, forcing cargo to be rerouted via the Cape of Good Hope, which would significantly increase global freight rates,” Jain adds.
Capital Flows Reflect Diverging Risk Appetite
Foreign investors continued to back away from Indian equities, extending their selling streak into a fourth straight session. On June 16, FIIs offloaded Rs 2,539.42 crore worth of stocks across NSE, BSE, and MSEI. That comes on the back of Rs 1,263.52 crore sold on June 13, Rs 3,831.42 crore on June 12, and Rs 446.31 crore on June 11. The continuous selling showed global investors’ trend on dialling down exposure to emerging markets amid rising geopolitical tensions, elevated crude prices, and stretched valuations at home.
Unlike foreign institutional investors (FIIs), domestic investors appear unfazed by external volatility, doubling down on long-term India fundamentals, consumption resilience and quarterly earnings.
Meanwhile, domestic institutional investors (DIIs) are doing the heavy lifting. On June 16 alone, DIIs bought equities worth Rs 13,763.97 crore and sold shares amounting to Rs 8,156.33 crore. This recorded a strong inflow of Rs 5,607.64, as per data from NSE.
“FIIs are sensitive to global risks like geopolitical tensions and US bond yields. They are more agile and can rotate funds globally depending on risk appetite. DIIs, on the other hand, are focused on India’s growth story, earnings trajectory, and political stability,” Khan adds
According to Sinha, while foreign capital remains volatile, India’s growing domestic investor base offers a cushion. “The resilience of Indian markets to FII volatility has increased dramatically. Retail systematic investment plans (SIPs) now contribute over Rs 19,000 crore monthly. Indian capital is sticky now, offering ballast in rough waters,” he adds.
“This divergence highlights the rising confidence of domestic capital. DIIs continue to back the India story even as FIIs take a cautious approach,” adds Poddar.
Defence Stocks Rally on Strategic Tensions
Amid the broader market weakness, defence stocks surged on expectations of increased government spending and new order flows. The Nifty India Defence Index jumped over 1.6 per cent, breaching the 9,000 mark and then fell slightly to close at 8,898.55. Mazagon Dock Shipbuilders led the rally with a gain of more than 4 per cent, followed by Garden Reach Shipbuilders, Bharat Dynamics, and Cochin Shipyard, all gaining between 1 per cent and 4 per cent.
Analysts are attributing the rally to growing market anticipation of rising defence budgets and global demand, particularly with tensions escalating in both the Middle East and Eastern Europe.
“The sector’s market cap hit a record in May, with PAT growing at 23 per cent CAGR between FY19 and FY25,” adds Khan.
