Nifty, Sensex Down 8% Amid Iran-US War, Crude Oil At Sky High: How Past Geopolitical Crises Have Shaped Market

Nifty and Sensex have declined nearly 8% to 9% since the beginning of US-Israel war on Iran on February 28. While benchmark indices ended this week on a flat note, they had witnessed a sharp 3%-4% drop in the previous week. The prevailing bearish sentiment in Indian markets is driven by rising tensions in West Asia, a surge in crude oil prices, and concerns over potential energy supply disruptions.

India VIX, known as 'fear gauge' to reflect market volatility, surged nearly 52%-62% over two sessions post US-Israel strikes on Iran. As per Brickworks rating report, this was the sharpest rise in India VIX since early COVID. The sharp surge indicates heightened investors anxiety and market volatility.

While investor caution during periods of global conflict is expected, past trends in Nifty indicate that the Indian stock market tends to recover from downturns and deliver resilient long-term gains.

Nifty 50 Performance During Russia-Ukraine War, Iraq War, Libya Civil War, etc

Nifty 50 saw its biggest fall in two years of 4.7% when Russia began its Ukraine invasion in February, 2022. The Russia-Ukraine war had also sent oil prices soaring and raised fear of inflation. However, the key benchmark index not only recovered from the fall, but also gained around 5%-6% in next one month.

Indian Stock Market During Libya Civil War

The 2011 Libya Civil War also triggered volatility in the Indian stock market, with indices falling by around 1% in the following month. While markets remained unstable for nearly a year after the conflict began, they eventually recovered over the long term.

Nifty 50 During Iraq War in 2003

The Iraq war, which began in 2003, lasted for nearly seven to eight years and had also impacted the global crude oil supply at that time. The combined force of troops from the United States and Great Britain invaded Iraq and also defeated Iraqi military and paramilitary forces. Nifty 50 declined nearly 8% in the first month after the beginning of the Iraq war, but rebounded sharply in the next six months.

According to experts, panic-driven selling often creates opportunities for investors, as even high-quality stocks become available at attractive valuations. The ongoing sell-off in Indian equities has brought broader market valuations closer to their long-term averages.
"With continuing sell-off in local equities, valuation across broader markets have moderated and are nearing long-term averages. However, valuation of mid and small caps continues to trade marginally above 10Y average readings," said Naval Kagalwala, COO & Head of Products, Shriram Wealth Ltd.

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