India’s stock market suffered a across-the-board selloff Friday as an intensifying Iran war in West Asia pushed crude oil prices above $100 a barrel, threatening the inflation outlook and fiscal stability of Asia’s third-largest economy.
The benchmark 30-share S&P BSE Sensex fell as much as 2.07%, or 1,579.82 points, to 75,070.44 in Mumbai while broader NSE Nifty 50 dropped 2.22% to 23,305.75. The equity rout was mirrored in the currency and bond markets, as investors grappled with the implications of a prolonged war and shutdown of the critical Strait of Hormuz shipping lane.
The rupee plunged to a lifetime low of 92.4325 per dollar, eclipsed its previous record set just a day earlier. The currency has now lost approximately 1.5% of its value since the Iran war began. The decline would likely have been more severe if not for aggressive intervention by the Reserve Bank of India across spot and forward markets, according to local traders.
“Risk aversion is deepening globally as the conflict approaches the two-week mark,” said a private-bank trader. “For an oil-import-dependent nation like India, the combination of $100-plus crude and a weakening currency creates a classic twin-deficit worry.”
Energy Shock
Brent crude, the global benchmark, climbed to $101 per barrel on Friday. For India, which imports more than 80% of its oil needs, the price spike is a direct hit to its growth-inflation dynamics. Analysts at HDFC Bank Ltd. warned that if oil averages $90 a barrel due to the conflict, headline inflation could be pushed up to 5%-5.5% for the fiscal year ending 31 March 2027—nearly 100 basis points higher than previous forecasts.
One basis point is one-hundredth of a percentage point.
The impact of the energy shock was visible in the industrial and metal sectors. Larsen & Toubro Ltd. and Tata Steel Ltd. each slumped more than 4%, leading the declines on the Sensex. The defense and infrastructure stocks also suffered, with Bharat Electronics Ltd. and UltraTech Cement Ltd. among the prominent laggards. Conversely, defensive plays like Hindustan Unilever Ltd. and Bharti Airtel Ltd. managed to post modest gains.
Bond Yields Climb
The selloff extended to the sovereign debt market, where the benchmark 6.48% 2035 bond yield edged up to 6.6744%. The bond prices—which move inversely to yields—have come under pressure as traders price in a “higher-for-longer” interest rate environment.
The RBI has sought to anchor the market by conducting ₹50,000-crore worth of OMO purchases earlier this week with plans for a similar injection on Friday.
Despite these efforts, the swaps market signaled growing anxiety—the one-year overnight indexed swap (OIS) rate rose 5 basis points to 5.81%, reflecting bets that the RBI may have limited room to ease policy if energy costs remain high.
Capital Flight
The geopolitical tension has triggered a sharp reversal in foreign capital flows, which had been a pillar of Indian equity strength earlier this year. Overseas investors have offloaded nearly $5 billion of Indian stocks so far this month, according to data compiled by Bloomberg.
Looking ahead, economists are bracing for further currency depreciation. MUFG Bank Ltd. warned that if oil sustains at $120 a barrel amid energy shortages, the rupee could weaken to 97.50 or lower. QuantEco Research offered an even more bearish outlook, suggesting the currency could hit 98.5 by March 2027 under a persistent $100-per-barrel scenario.
“The market is currently in a ‘left tail risk’ environment,” MUFG analysts wrote in a note. “Until there is clarity on the Strait of Hormuz and the scale of the Iran-Israel escalation, Indian assets will remain on the defensive.”
