Escalating hostilities between the US, Israel and Iran have pushed geopolitics back to the forefront of global markets, triggering sharp moves across asset classes. On March 2, the Nifty 50 and Sensex were trading about 1.8% lower, while Brent crude jumped nearly 6% and gold gained around 3%, reflecting heightened risk aversion.

However, in a note titled “US–Israel–Iran conflict: What it means for India”, Axis Asset Management said that while near-term volatility may rise, such episodes have historically not altered India’s long-term investment trajectory.

Crude oil remains the first shock channel

Axis AMC noted that oil is the most immediate transmission mechanism for India, which imports more than 80% of its crude requirements. A sharp rise in crude prices can widen the current account deficit, lift inflation and weigh on oil-sensitive sectors such as aviation, paints, cement and chemicals.

The Strait of Hormuz, through which around 20% of global crude flows and nearly 30% of LNG trade pass, remains a critical risk. More than half of India’s energy imports transit this route, making any disruption a potential pressure point for energy security and external balances.

That said, the fund house highlighted that oil shocks alone have not historically derailed equities unless sustained long enough to damage growth and monetary stability. During the Russia–Ukraine war in 2022, Brent crude surged past $100 per barrel, yet Indian markets ended the year in positive territory after an initial sell-off.

Rupee and FII flows may drive volatility

Geopolitical stress typically strengthens the US dollar, putting pressure on emerging market currencies, including the rupee. Axis AMC said INR weakness has generally been orderly rather than disruptive, supported by India’s sizeable foreign exchange reserves and relatively stable fiscal and current account metrics.

While foreign institutional investor flows may amplify short-term swings, past episodes — including the 2013 taper tantrum and the 2020 pandemic shock — did not lead to prolonged equity underperformance.

RBI’s stabilising role

Axis AMC stressed the Reserve Bank of India’s role as a key anchor during global shocks. The central bank has historically looked through temporary inflation spikes driven by geopolitics and relied on liquidity management tools to maintain financial stability.

The broader takeaway, the fund house said, is that conflict-driven market corrections in India have typically been shallow and temporary, with long-term returns ultimately driven by earnings growth, domestic demand and policy stability rather than geopolitical headlines.