Indian markets have already seen a sharp rally since the truce with the Nifty climbing roughly 1,000 points during this period. This recovery came from the sharp correction triggered after the conflict began in late February.
However, that rally now faces a fresh test as uncertainty returns ahead of the deadline. Iran has accused the US of not being serious about diplomacy and flagged violations of the ceasefire, while another round of talks proposed in Pakistan remains uncertain. At the same time, crude oil prices have already reacted, rising about 6% amid renewed tensions around the Strait of Hormuz.
For markets, the outcome of the ceasefire will matter less as a geopolitical event and more for its direct impact on oil. A continuation of the truce or signs of de-escalation could bring immediate relief across asset classes. Analysts expect crude prices to cool as the risk premium linked to the Strait of Hormuz fades.
Vipul Bhowar of Waterfield Advisors said crude could fall to the $85-$90 per barrel range if tensions ease, which would help reduce inflation pressure and support the rupee. Lower oil prices would also give the RBI more flexibility on rates.
Equities could extend their recent gains in such a scenario. Paresh Bhagat of Veer Growth Fund said markets could see a short-term rally of about 2-3% if de-escalation sustains, as macro stability improves and risk appetite returns.
The recent rally in Indian equities suggests investors are already positioned for some degree of stability. Continued calm could reinforce that trend and push markets closer to previous highs.A middle path, where negotiations drag without a clear breakthrough, could keep markets volatile but directionless.
Bhowar said crude may remain in a broad $95-$105 range in such a case, reflecting uncertainty without a full-blown supply shock. Bhagat added that Indian equities have shown resilience to geopolitical noise as long as oil prices do not spike sharply.
Recent trading patterns support this view. Even during periods of negative news flow, markets have seen limited downside, with investors focusing more on domestic earnings strength and valuations.
Balaji Rao of Bonanza noted that despite initial declines during the conflict, markets stabilised quickly, aided by strong corporate performance and improving sentiment. He said investors should continue to track crude prices as the primary signal rather than reacting to headlines.
If the ceasefire collapses
The most significant risk for markets is a breakdown of the truce leading to renewed hostilities.
In that case, crude oil could move sharply higher, potentially crossing $100 per barrel if supply routes like the Strait of Hormuz are disrupted. For India, which imports the bulk of its crude, this would have immediate macroeconomic consequences.
Higher oil prices would widen the current account deficit, weaken the rupee and push up inflation, increasing the likelihood of tighter monetary policy.
Equity markets would likely see a risk-off reaction initially. Bhagat estimates the downside could be around 300–400 points in the near term, though deeper losses would depend on how long oil prices remain elevated.
Bhowar also warned that sustained high crude could force the RBI into a more hawkish stance, delaying any rate easing cycle and adding pressure on growth.
Focus shifts back to oil
Across all scenarios, one theme remains consistent. The direction of crude oil will determine the market response more than the geopolitical headlines themselves.
Indian markets have already demonstrated this linkage over the past two months. The initial sell-off during the escalation was driven by fears of supply disruption and rising oil prices. The subsequent recovery came as those fears eased during ceasefire talks.
As the Tuesday deadline approaches, investors are likely to stay cautious, with positioning driven by expectations around oil rather than the outcome of negotiations alone.
For now, the 1,000-point rally in the Nifty reflects optimism that the worst may be behind. Whether that view holds will depend on how events unfold over the next few days.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)