Nifty 50 outlook: The sharp impact of the heightened geopolitical tensions in the wake of US and Israel’s attacks on the Indian equity markets was clearly visible in the bloodbath on Dalal Street on Monday, which not only pushed benchmark indices to multi-month lows but also wiped off investor wealth by around ₹6 lakh crore in a single day.
Singed by the impact of the Middle East conflict, investors are dumping equities in favor of safe-haven assets like gold and the US dollar. This has resulted in sharp drawdowns not only in global equities but also in India.
The Nifty 50 index kicked off the holiday-shortened week on a gap-down note as it plunged to the near 24,600 mark. Though it ended at 24,865, nursing losses of 1.24%.
Middle East tensions drive crude oil prices
The deteriorating condition in the Middle East has caused the deaths of hundreds of civilians in Iran, Israel, Lebanon and other nations since the US and Israel launched the war by killing Iranian Supreme Leader Ali Khamenei from the air on Saturday.
The reported elimination of Iran’s Supreme Leader and senior security officials has raised the likelihood of disruption to the Strait of Hormuz, through which nearly 20% of global oil flows and over 40% of India’s crude imports transit.
Brent prices have already moved over 7% higher in just two days to near $80 a barrel. For India, the impact is direct: every $1 rise in crude increases the annual import bill by ~$2 billion, putting pressure on the trade balance, estimates JM Financial.
With US President Donald Trump predicting that the Middle East could witness four to five weeks of sustained combat, the threat is turning even more real.
India imports 90% of its oil and gas needs. Higher for longer crude oil prices threaten not just the Indian economy but also weigh on the earnings of India Inc.
Investors should be prepared for deeper short-term pain, as a huge number of companies’ raw materials are either dependent on oil prices or their supply chains are dependent on sea routes close to the Middle-East, said Prasenjit Paul, Equity Research Analyst at Paul Asset & Fund Manager at 129 Wealth Fund.
Undoubtedly, the fate of the Indian stock markets is now directly linked to the oil price movement. JM Financial even said in a note over the weekend that markets are likely to move from earnings-driven to oil-driven trading in the near term.
Can Nifty 50 crash to below 21,000 amid high crude prices?
The market is abuzz that Brent crude oil prices could surge to $100 per barrel amid a broader regional war. That said, Kranthi Bathini of Wealthmills Securities believes crude oil prices between $80-$100 also remain manageable for the Indian stock market.
However, if global oil prices stay elevated for a prolonged period, it will create pressure on Indian markets, affect the current fiscal position, and slow down the cooling of inflation, which has been favorable until now, he cautioned. “Prolonged high oil prices would also impact the rupee and company earnings.”
Against this backdrop of higher crude prices, at least in the near term as volatility and uncertainty remain high, analysts predict a fall of 10-12% in the worst case.
Based on Monday’s close, that puts the Nifty 50 close to 21,880 levels. To slip below the 21,000 mark, the index would need to crash at least 15%, which analysts believe looks unlikely as of now.
“A move below 21,000 appears unlikely under the current base case. For such a level to be tested, crude would need to surge sharply and remain elevated long enough to materially alter inflation expectations, fiscal dynamics, and corporate profitability,” said Harshal Dasani, Business Head at INVasset PMS.
At present, the domestic flows remain resilient, while macro buffers are strong, unlike in previous oil-led stress cycles, as reports suggest that the government is maintaining a 60-day buffer stock.
Unless the conflict escalates dramatically and sustains global risk aversion, a deep structural breakdown below 21,000 does not appear the most probable outcome, he added.
Mahesh Ojha, Vice President of research and business development at Kantilal Chhaganlal Securities, said that we can expect a 10–12% correction in the index from the recent high near 23,700–23,170. The index has support at 24,570–24,330, and if these levels are broken on a closing basis, further downside is possible, he opined.
“At present, we are not considering 21,000 as a likely level, given that GDP data is strong, GST collections are healthy, and monthly auto numbers are good. Overall, we are not bearish on the index,” he opined.
Furthermore, he expects a reversal sometime in March or April, with the possibility of a new high for the index.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
