Explained: What US-Israel war on Iran means for Indian stock market investors, crude oil and exports

Indian stocks cratered and the rupee hit a one-month low on Monday as markets opened to a world remade overnight, where the United States and Israel had struck Iran, killed its Supreme Leader Ali Khamenei, and set off retaliatory strikes across at least seven countries. With the Strait of Hormuz now in the crosshairs of a widening war, crude oil has suddenly become the single most important variable for India's macro-financial stability as well as stock market investors in the near term.

Brent crude futures surged 6% to $77 a barrel in the first session after the strikes. Goldman Sachs estimated an $18 per barrel real-time risk premium already baked into prices on Sunday, warning that if 50% of flows through the Strait of Hormuz are halted for a month, that premium could moderate to around $4. Citi analysts, meanwhile, put their base-case range at $80 to $90 per barrel for at least the coming week, while flagging a pullback to $70 on de-escalation.

The Sensex plunged around 900 points while the Nifty fell 1% to 24,900, with banks, auto stocks and oil marketing companies (OMCs) leading the decline. The rupee slid 0.3% to 91.2350, its weakest since early February.

"The uncertainty related to the war in West Asia will loom large over the market in the near term," said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments. "The major risk from the market perspective is the energy risk arising from the surge in crude. Indications are that a sharp spike in crude by, say 20%, is likely only if the Hormuz Strait is closed, obstructing oil transport through the strait. There is no official confirmation of this yet. If Brent crude remains around $76, equity markets may remain weak but are unlikely to witness a big crash."

Vijayakumar urged investors to hold their nerve. "Experience tells us that panic selling during a crisis is the wrong strategy. Data from crises during the last many decades tells us that an event like the present crisis will not have any impact on the market six months later. This is the takeaway from market behaviour after recent crises like Covid, Russia-Ukraine and the Gaza conflict."

He added that market weakness could be used to slowly accumulate high-quality stocks in domestic consumption themes like banking, automobiles, capital goods and defence.

The consensus on the Street is that this ends quickly, but the risk of it not doing so is precisely what is rattling investors.

"We expect the hostilities to end in 1 to 2 weeks and the markets to recover sharply, as they did in Oct 23 and Jun 25," said Seshadri Sen of Emkay Global. "A sustained war, however, poses significant macro risks for India."

Sen's base case is that the Nifty tests 24,500 to 25,000 levels, and could go lower if the conflict extends beyond 1 to 2 weeks. The macro arithmetic is stark: every $10 per barrel increase in crude inflates India's current account deficit by 0.5% of GDP while putting pressure on the rupee and domestic inflation.

Winners and losers of Iran, Israel, US war

The war has created a sharply bifurcated market. Upstream energy producers ONGC and Oil India are the clearest beneficiaries, with JM Financial noting that every $1 per barrel increase in Brent boosts their earnings per share by 1.5 to 2% each and that the $75 per barrel cap on realisations is no longer applicable. Defence stocks like BEL, HAL and Data Patterns are also seen as beneficiaries, with Jefferies noting that India's defence spending rose 18% year-on-year in FY26 and further double-digit growth is budgeted, even as India's 0.6% of GDP defence capex spend remains well below its previous peak of 1%.

On the losing side, OMCs face the sharpest immediate pain. JM Financial calculates that every $1 per barrel rise in Brent hits OMCs' auto-fuel gross marketing margins by Rs 0.55 per litre and their consolidated EBITDA by 7 to 9%. Airlines face a double blow of higher fuel costs and potential flight cancellations. IndiGo is among the most exposed names.

Emkay's Sen flags L&T, KEC, and IndiGo as the most vulnerable if hostilities persist, with L&T particularly exposed given the Middle East now accounts for 37% of its Rs 7.33 lakh crore order book. JM Financial adds KEC and KPTL to that list, along with Cummins India, Thermax and AIA Engineering due to their export exposure.

Macro stakes are high for India as the Middle East takes 17% of domestic exports, supplies 55% of its crude oil, and accounts for 38% of worker remittances. "A prolonged conflict, alongside a large jump in energy prices, would be a major macro negative," Jefferies said, while also noting that recent regional conflicts have been temporary, and that a dip could be a buying opportunity.

Where to hide?

For investors looking to reposition, the consensus playbook from Emkay Global points to upstream energy (ONGC, Oil India), metals (Hindalco), IT (Infosys, HCL Tech, insulated from the conflict and benefiting from rupee depreciation, though AI concerns linger), pharma as a classical defensive, and private banks with relatively inexpensive valuations.

The next 48 hours, and whether Tehran's counterstrikes escalate or plateau, will determine whether this is a buying dip or the start of something more prolonged.

Also Read | Silver ETFs tumble 15% in one month, gold ETFs gain 3%. What should investors do?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)