Indian equity markets may continue to face heightened volatility in the coming sessions as geopolitical tensions in the Middle East, surging crude oil prices and persistent foreign investor outflows keep investor sentiment fragile, according to analysts.

Benchmark indices - the Sensex and the Nifty - have already logged their steepest weekly fall in four years, declining more than 5% as the ongoing conflict in West Asia triggered a sharp risk-off sentiment across global financial markets. The escalation has pushed crude oil prices close to the $100-per-barrel mark, raising concerns about inflation, corporate margins and external sector pressures for oil-importing economies such as India.

On Friday, the BSE Sensex declined 1,470.50 points, or 1.93%, to close at its day’s low of 74,563.92, while the Nifty 50 fell 489.25 points, or 2.06%, to settle at 23,152.90. 

Market experts say the uncertainty surrounding the conflict and its potential impact on global energy supplies could continue to drive volatility in the near term.

Ponmudi R, CEO of Enrich Money, said the outlook for Indian equities remains cautious until there is greater clarity on geopolitical developments and energy markets.

“Overall, the near-term outlook for Indian equities remains cautious and volatile. Market sentiment is likely to stay fragile until there is greater clarity on the energy supply situation and geopolitical developments in the Middle East. Until then, global risk factors may continue to overshadow the otherwise strong structural fundamentals of the Indian economy,” he said.

India’s heavy reliance on crude imports from the Gulf region adds to the risks. A prolonged disruption in energy supply could significantly increase the country’s import bill and intensify inflationary pressures, potentially complicating the macroeconomic outlook.

Oil spike and war fears drive risk-off sentiment

Ajit Mishra, Senior Vice President – Research at Religare Broking, said rising crude prices and geopolitical uncertainty have triggered a wave of risk aversion among investors.

“Sentiment remains fragile amid escalating tensions in the Middle East, which have pushed crude oil prices close to the $100 per barrel mark and raised concerns over inflationary pressures and global economic stability. The situation has also led to continued foreign institutional investor outflows and weakness in the rupee, further weighing on market sentiment,” he said.

Mishra advised investors to adopt a cautious approach amid the prevailing uncertainty. “Participants should maintain lighter positions, focus on strict risk management and adopt a selective trading strategy until volatility subsides,” he added.

Vinod Nair, Head of Research at Geojit Investments, said the recent market sell-off was driven by a combination of geopolitical shocks and technical factors.

“The sharp correction in the market was triggered by a perfect storm of escalating geopolitical conflict and macroeconomic shocks, along with margin-related technical pressures that forced investors to square off short-term positions,” Nair said.

He added that sectors such as metals and automobiles have been among the worst hit, as higher crude prices could raise input costs and impact corporate profitability.

“Crude oil prices nearing $100 per barrel raise concerns about inflation, corporate margins and rupee stability. Heightened volatility has also discouraged traders from carrying positions into the weekend amid persistent geopolitical risks,” he said.

Technical indicators signal strong bearish momentum

Technical analysts believe the market structure has weakened significantly, suggesting that volatility could persist in the near term.

Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, said the Nifty has slipped below key long-term technical indicators, signaling strong bearish momentum.

“The index has closed below its 100-week exponential moving average for the first time since June 2022 and also slipped below the 20-month EMA, indicating significant weakness in the broader trend. Momentum indicators remain strongly negative,” Shah said.

He added that the immediate support for the Nifty is placed around the 23,000–22,950 zone. A sustained move below this level could lead to further downside towards 22,750 and 22,500 in the short term, while the 23,450–23,500 band is likely to act as a strong resistance on the upside.

Analysts say investors will closely track geopolitical developments, crude oil price movements and foreign institutional investor flows in the coming days. Until clarity emerges on the global risk environment, markets are likely to remain sensitive to external shocks despite India’s strong long-term growth prospects.

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