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A note by Axis Asset Management, released on March 2, says while such conflicts can spark short-term volatility, history suggests they rarely change India’s long-term growth story.
US-Israel-Iran War.
The escalating tensions in West Asia involving the United States, Israel and Iran have rattled global markets and raised concerns about the economic fallout for countries far from the conflict zone, including India. A note by Axis Asset Management, released on March 2, explains that while such conflicts can spark short-term volatility, history suggests they rarely change India’s long-term growth story.
Markets React First, But Usually Calm Down
The report notes that geopolitical shocks almost always cause immediate market swings. It states, “Missile strikes, retaliatory attacks and fears of a broader Middle East conflict have predictably unsettled investors.”
In the afternoon trade today, March 2, Indian equities were down about 1.8%, bond yields had risen slightly, Brent crude was up roughly 6%, and gold had gained about 3%.
However, the broader message is reassuring. According to the report, “Wars and geopolitical conflicts typically trigger short-term market turbulence, but they have not resulted in sustained equity underperformance, particularly when conflicts remain regional.”
Oil Prices: The Biggest Risk Channel
For India, oil is the most direct economic link to West Asian conflict. The report explains: “Oil is the most immediate transmission mechanism. India imports more than 80% of its crude requirements, making it sensitive to Middle East instability.”
Global oil prices are up about 9% on Monday after earlier surging by as much as 13%.
Higher oil prices can increase inflation, widen the current account deficit, and raise input costs for industries.
Sectors like aviation, cement, paints and chemicals tend to react quickly because their costs depend heavily on fuel prices.
The Strait of Hormuz is a major risk factor. About 50% or more of India’s energy imports pass through this route, which handles roughly 20% of global crude oil and 30% of LNG trade.
Any disruption there could affect India’s energy security and inflation outlook.
Rupee May Fluctuate, But Panic Is Rare
The rupee depreciated 21 paise to 91.29 against the US dollar on Monday, amid higher crude oil prices, a strong American currency and intense global volatility due to the escalated Middle East tension. Forex traders said Negative equity market sentiment and massive withdrawal of foreign funds also weighed on the Indian currency.
During global crises, investors often move money into safer assets like the US dollar. This usually puts pressure on emerging-market currencies, including the rupee.
Still, the report says currency moves have generally been manageable because India has strong forex reserves and improved external balances.
It adds that rupee weakness in past crises — such as the 2013 taper tantrum, the pandemic shock and the Russia-Ukraine war — did not lead to lasting equity declines.
RBI’s Role: Stability Anchor
The Reserve Bank of India plays a key stabilising role during global shocks. The report states that the RBI typically “looked through temporary, geopolitically driven inflation spikes, focusing instead on core inflation trends and the durability of growth.”
Liquidity management is also used to smooth volatility and reassure investors.
What History Shows About Markets During Wars
The report reviews several conflicts over the last 15 years and finds a consistent pattern:
2011 Arab Spring: Volatility but recovery later
2014 Crimea crisis: Nifty gained about 31% that year
2016 Uri strikes: Brief dip, then rise
2019 Balakot strikes: Minimal impact
2022 Russia-Ukraine war: Nifty fell nearly 5% on invasion day but ended the year positive
2023 Israel-Hamas war: Dips under 1% before stabilising
2025 Operation Sindoor: Initial market jitters gave way to stability as escalation risks remained contained, reinforcing the market’s tendency to look through short-term uncertainty.
Conflict-driven drawdowns tend to be shallow and temporary, while long-term returns depend mainly on earnings, liquidity and domestic demand.
Why Markets Stabilise Fast
One key insight from the report is that markets respond to real economic impact, not emotions. The report states, “Markets price duration and economic impact, not emotion.”
Once investors see that supply disruptions are manageable and growth isn’t structurally damaged, risk premiums fall and markets stabilise.
Investor Strategy: Discipline Beats Panic
The report stresses that reacting emotionally to geopolitical headlines can hurt investors. It says investors who exited equities during earlier conflict-driven sell-offs often missed quick recoveries.
Axis Asset Management said: “Stay invested, diversify sensibly and use periods of declines to add to your existing holdings.”
The US and Israeli attacks over the weekend reportedly killed Iran’s Supreme Leader Ali Khamenei, prompting retaliatory Iranian strikes on Israel and other countries, including Gulf states hosting US military bases. US President Donald Trump indicated that the joint military offensive could continue for weeks.
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March 02, 2026, 15:38 IST
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