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Domestic equities tumbled under relentless selling pressure on Monday as the US-Israel and Iran conflict stoked fears of elevated crude oil prices and clouded India Inc’s earnings outlook for the coming quarters.

India’s benchmark Nifty 50 fell 1.2% to 24,865.7, tracking weakness across Asian markets, though it fared marginally better than most emerging peers. Thailand led the declines, plunging nearly 4%, followed by Indonesia and Hong Kong, where benchmark indices slipped 2-3%. China stood out as the exception, with the CSI 300 inching up 0.4%.

Monday’s decline in Nifty was relatively modest compared with past global conflicts. The index had slumped nearly 5% in a single session when Russia invaded Ukraine in February 2022. By contrast, after Hamas attacked Israel in October 2023 and during the Israel-Iran flare-up in April 2024, the benchmark fell just 0.3% and 1.1%, respectively.

In each of these episodes, the market recovered to its pre-shock levels within nine days on average, Mint’s analysis of major post-Covid conflicts shows. The pattern suggests that geopolitical flare-ups typically trigger knee-jerk sell-offs, with sentiment stabilizing swiftly as greater clarity emerges. This time, however, experts warned that the trajectory of Indian markets hinges squarely on crude oil prices, especially with major growth tailwinds already priced in.

In fact, foreign portfolio investors (FPIs), who had turned selective buyers in February, may treat rising oil prices as a fresh trigger to pare exposure and stay cautious through the month, experts warned. On Monday alone, FPIs sold nearly ₹3,230 crore worth of equities, according to provision data from the National Stock Exchange.

Crude prices have surged nearly 30% this year amid fears of near-term supply shocks from the ongoing conflict and reports of the Strait of Hormuz being effectively closed—a key chokepoint for global oil flows. Brent crude is currently trading around $78.5 a barrel.

“Oil hovering near $80 (per barrel) hasn’t triggered panic yet. But a spike toward $100 could alter market expectations materially,” Vinod Nair, head of research at Geojit Investments.

India imports roughly 85% of its crude oil requirements, with about 46% sourced from Saudi Arabia, Iraq, the United Arab Emirates and Kuwait—a region now embroiled in the current conflict, unlike in earlier episodes.

“Diversification is also not an option as Russian crude purchases face constraints from the US,” said Nair. “Rerouting supplies from other regions will raise both freight and insurance costs and inflate input expenses for companies.

This could squeeze India Inc’s profit margins at a time when its profit growth slowed to a five-quarter low in the December quarter, a separate Mint analysis showed.

Devarsh Vakil, head of prime research at HDFC Securities, noted that paints, lubricants, aviation and chemical companies, where crude-linked inputs account for an estimated 40-70% of total raw material costs, would bear the brunt of the latest shock.

This could upset India Inc’s FY27 earnings estimates and further compress valuations, especially with markets priced for a recovery, said Nair of Geojit Investments. After the December-quarter results, consensus pegged Nifty 50’s FY27 earnings growth at around 16%.

“The immediate quarter may escape major damage. But if the oil shock persists, there is a real risk that Q1 (FY27) earnings growth could slip into a single digit,” Nair said.

Harshal Dasani, business head at INVasset PMS, said Indian markets are likely to remain extra sensitive to fresh global triggers, given they were already contending with valuation fatigue and sector-specific stress, particularly in IT.

“It’s less about panic and more about risk positioning,” he said. “When markets are stretched, they tend to react more swiftly as uncertainty rises.”

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