Battered stock markets and the rupee are set for a bounce back on Tuesday after US President Trump on Monday postponed any military strikes against Iranian power plants and energy infrastructure for five days, citing “productive conversations” toward a “complete and total resolution” to the West Asia conflict.
While Dow Futures surged by nearly 2%, Brent crude futures (June 2026) fell by 8.6% to $97.08 per barrel and the dollar slid against the euro in the wake of the de-escalation signal. Indian market indices which plunged 11.6% since the war began on February 28 are expected to rally on the back of Trump’s announcement. The rupee, which hit a new record low against the US dollar Monday, may strengthen on Tuesday due to the fall in oil prices.
London’s FTSE 100 and European stocks staged a sharp rally on Monday, surging from lows, after Trump signalled “very good and productive talks” between the US and Iran.
Indian markets were sharply down earlier in the day, and the rupee hit the 94 per dollar level for the first time as the US-Iran war entered its 4th week, keeping crude oil prices elevated around $110 per barrel. Sensex closed at 72,696.39 points, down 1,836 points or 2.46%, while Nifty 50 slid 2.6% at 22,512.65 points. Since the war began, markets are down about 11.6%, with the rupee weakening 3% to close at 93.97 against dollar.
Barring Tech Mahindra, ONGC, and HCL Tech, all other Nifty 50 constituents are trading lower, with many down over 4%. India VIX, which indicates the volatility in the market, has climbed over 15% during the session.
Foreign investors have been persistently pulling out funds from the Indian markets due to diminishing returns, which is further hurt by the weakening of the rupee. The Indian currency, which had weakened below the 93 mark against the dollar for the first time on Friday, had first breached the 91-mark against the dollar in December before falling below the 92-mark earlier in the month. This increased pace of decline for the rupee is another headwind for foreign investors looking at Indian markets as an opportunity.
When the war in West Asia began late in February, sending crude prices around the $100 a barrel mark, most had expected it to de-escalate in a few days. However, the situation has only worsened, sending crude prices even higher. Iran, which has geographical control over the crucial Strait of Hormuz trade route, had threatened over the weekend to completely close it off if the US and Israel attack its nuclear facilities. Currently, Iran is selectively allowing ships to pass through the waterway, which is responsible for transporting around a quarter of the global crude oil supply.
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These threats from Iran came after strikes at its main nuclear enrichment facility situated in Natanz on Saturday. While Israel denied responsibility for the attack, Iran responded by launching missiles around Israel’s main nuclear research centre, injuring dozens of people.
Many experts had expected crude prices to rise to $120-$150 a barrel if the war lasted for over a month, and these levels would hurt markets and economies around the world. Following the escalation over the weekend, Asian markets also crashed earlier in the day. The South Korean market crashed 6.5%. The Japanese and the Chinese markets fell as much as 4%.
In India’s case, such high crude prices are a risk to economic growth and corporate earnings. It could also delay the impact of the GST cuts and income tax relief that the government had announced in order to boost domestic consumption.
If inflation rises due to the high crude prices, it could also further delay interest rate cuts by the Reserve Bank of India, often seen as a negative by the market. In a worst-case scenario, the central bank may even change its stance, looking to potentially raise the rates.
