Nifty & Bank Nifty plunged as Trump’s Iran war escalates and the RBI panics

 

●      At around 740 TTM Nifty EPS and 762-839 estimated EPS for FY26-27, the base case fair value may be around 15240-16780 if the Iran war escalates further.

●      Otherwise, 22000-21800 may be an interim base, assuming 1000 Nifty EPS for FY30.

●      Iran war ‘fun’ may have turned into ‘panic’ for Trump now; Iran may not surrender before Trump’s obnoxious 15-point demand.

●      RBI’s sudden decision to put restrictions on USDINR open positions (NOP-INR) to control USDINR acceleration may indicate panic by the Central Bank & the government. rather than any structural effort 

Trump’s Iran war "fun," specifically the Strait of Hormuz (SOH) led energy product disruptions, has turned into panic for the Indian public & economy. It now seems that, despite prior indications, the Indian government was underprepared for such a potential Iran war crisis, especially for oil & gas, LPGs (domestic & commercial), and various commodities, including fertilizers. In brief, both India’s energy & food security are at stake; Indian exports may also be affected due to the SOH embargo. The LPG crisis has already affected a part of India’s QSR (Quick Service Restaurant) and gig economy (Swiggy ecosystem). Many other industrial and transportation sectors are suffering from direct & indirect energy/LPG crises—both scarcity and higher prices. In brief, the Iran war, now in its 4^th week, if it lingers beyond April '26, the Indian economy may be seriously affected through various channels:

●      Global & local spikes in energy products and other commodities, including food products & fertilisers

●      Higher USDINR

●      High import bill and higher imported inflation

●      Potential higher energy & fertilizer subsidies—

●      Higher & delayed subsidies for energy products & fertilizers, and higher fiscal deficit and lower discretionary spending by the government (like infra)

●      Supply scarcity of fertilizer may result in lower food production and higher food inflation.

●      Higher prices for energy products may also result in higher core inflation due to the transmission effect (like through potentially higher cost of logistics, LPGs, etc.)

●      RBI may have been on hold instead of the expected 50 bps cuts in 2026, and may even be forced to hike if the Fed chooses the same

●      Higher bond yield may also result in higher borrowing costs for both the public and private sectors (including business & households)

●      The Middle East energy & fertilizer crisis, if it lingers, may result in lower outputs, lower economic growth, an adverse rural economy, a weak labor market, and subdued discretionary consumer spending—and may also result in muted corporate earnings growth.

Major sectors that may be adversely affected due to the lingering Iran war crisis

●      Rural & agri-market-savvy tractors, two-wheelers, seeds/pesticides (chemicals), and also FMCG and MFIs (direct/indirect effects)

●      Downstream sectors (Fertiliser users) ─ like Chemicals, resins, Plywood, etc.

●      Downstream sectors such as LPG users (via higher & scarce LPG) and quick-service restaurants (QSRs) could also face closure & margin pressure.

●      Potential gig workers’ distress (SWIGY/Zomato) may also affect the urban gig economy.

The US-Israel ‘special’ military operation against Iran, which escalated in late March 2026 (attack & counter-attack), has triggered a major geopolitical and synchronized global energy crisis. Iran’s retaliatory actions, including the effective closure of the Strait of Hormuz (SOH) since early March 2026, have severely disrupted global oil and LNG flows—a chokepoint responsible for roughly 20% of global oil & gas supplies.

For India, the world’s third-largest crude oil importer (meeting 85-90% of its needs through imports, with historically significant volumes routed via the Gulf), this conflict has delivered a sharp energy price shock, supply disruptions, and heightened macroeconomic uncertainty. As of late March 2026, Brent crude has experienced extreme volatility—surging past $120 per barrel at peaks before easing toward or below $100 amid fluctuating ceasefire hopes and diplomatic signals.

In brief, the overall direct & indirect impact of the lingering Iran war crisis may result in a stagflation-like scenario in India (higher inflation, higher unemployment, and lower economic growth); both exports & imports may be affected directly & indirectly by the SOH crisis. Elevated oil & gas prices have slowed private sector momentum, raised inflation risks, pressured the rupee and CAD, and triggered equity volatility with sharp initial declines followed by volatile recoveries tied to ongoing fluid geopolitical developments.

Elevated oil & gas prices have slowed private sector momentum, raised inflation risks, pressured the rupee and CAD, and triggered equity volatility with sharp initial declines followed by volatile recoveries tied to ongoing fluid geopolitical developments. As of late March 2026, the 2026 Iran war continues to exert short-to-medium-term headwinds on the Indian economy through elevated energy prices, supply disruptions via the Strait of Hormuz (SOH), rupee depreciation, and subdued business sentiment. Growth momentum has moderated, with downward revisions to 5.9% for calendar 2026, while inflation risks and a widening current account deficit add complexity for policymakers. Financial markets have experienced notable volatility and cumulative declines, though selective recoveries tied to de-escalation signals demonstrate sensitivity to diplomatic progress.

Mitigating factors include India’s diversified oil sourcing (with increased Russian volumes), strategic reserves providing 60-day cover, proactive government measures on essential supplies, and the underlying resilience of domestic demand and structural reforms. India’s neutral diplomatic posture — avoiding direct military entanglement and focusing on safe passage, evacuations, and stability calls — has helped preserve flexibility amid complex regional ties with the US, Israel, Gulf states, and Iran.

For India, the world’s third-largest crude oil importer (meeting 85-90% of its needs through imports, with historically significant volumes routed via the Gulf), this conflict has delivered a sharp energy price shock, supply disruptions, and heightened macroeconomic uncertainty. As of late March 2026, Brent crude has experienced extreme volatility—surging past $120 per barrel at peaks before easing toward or below $100 amid fluctuating ceasefire hopes and Trump’s diplomatic signals. While India has pursued diversification, strategic reserves, and diplomatic engagement, prolonged Hormuz disruptions continue to weigh on growth, inflation, and investor sentiment.

Energy Supply Disruptions and Oil Price Shock: Mini lockdown again to deal with growing energy scarcity?

India remains highly exposed due to its dependence on imported energy. Although the government has diversified crude sourcing across more than 40 countries and claims that a larger share of imports now bypasses the Strait of Hormuz via alternative routes, the near-shutdown of tanker traffic has still caused measurable shortfalls. Gas shortages have disrupted urea production, aluminum smelting, semiconductor inputs (helium), and operations in hotels, restaurants, and energy-intensive industries. Emergency rationing has prioritized household LPG supply.

Brent crude spiked post-escalation dramatically, reaching highs near $120-126 per barrel amid fears of an extended blockade. The market is now projecting an average of around $105 in March and $115 in April, assuming the Hormuz shutdown extends into mid-April before gradual normalization, with prices potentially falling toward $80 later in the year. India has secured supplies for approximately 60 days through aggressive sourcing, including a sharp increase in Russian crude (potentially reaching 40% of imports). Strategic petroleum reserves and diplomatic efforts for the safe passage of Indian-flagged vessels have provided some relief, though freight and insurance costs have risen sharply. Indian PM Modi has highlighted steps taken on oil and LPG sourcing while warning of lasting fallout if disruptions persist. India has maintained engagement with Gulf partners and emphasized the need for secure global shipping routes.

Macroeconomic Pressures: Inflation, Growth, Rupee, and Current Account Deficit

The oil shock has been transmitted through multiple channels. Input costs rose at the fastest pace since mid-2022, according to March HSBC/S&P Global flash PMI data, with companies passing on some increases via higher selling prices. Headline inflation, previously around 3.21%, faces upward risks from supply-driven pressures, with some forecasting it could reach 4.6% in 2026 (up from 3.9% pre-war). Private sector activity has slowed markedly. The Composite PMI fell to 56.5 in March—the steepest slowdown in 1.5 years—while the manufacturing PMI dropped to a 4.5-year low of 53.8 due to output cuts, uncertainty, gas shortages, and weaker demand. Services PMI also moderated, though export orders showed some resilience in surveys.

Growth forecasts have been revised lower. Analysts slashed their calendar-year 2026 projection for India to 5.9% from a pre-war 7% (with an intermediate cut to 6.5%). Every sustained $10 rise in oil prices is estimated to shave 0.1-0.2 percentage points off GDP growth, with broader sensitivities potentially higher due to energy shortages and non-linear effects. Global Rating Agency Moody’s has highlighted India as among the most vulnerable economies, with potential output losses nearing 4% in prolonged scenarios. The current account deficit is widening due to higher import bills, while fiscal pressures mount from increased subsidies on fuels, fertilizers, and LPG.

The Indian rupee (INR) has depreciated sharply, hitting record lows around ₹93-94 per USD (with risks of testing higher levels if oil sustains above $100). This reflects elevated dollar demand for energy imports, risk-off FII outflows (exceeding $8 billion in March), and global capital flight. The Reserve Bank of India (RBI) is leveraging substantial forex reserves for interventions and liquidity management. RBI may not cut in 2026, contrary to earlier perceptions of 50 bps. Secondary impacts include reduced remittances from the Indian diaspora in the Gulf (amid repatriation of nationals), potential trade disruptions, and higher shipping costs. Returnee capital from the region has provided some offsetting inflows into domestic real estate and other sectors.

RBI Caps Banks' Net Open Rupee Position at $100 Million; banks may be in huge loss if forced to unwind open position suddenly, and thus requested 2-3 months for an orderly unwinding

On March 27, 2026, RBI directed all authorized dealer banks to limit their Net Open Position in Indian Rupee (NOP-INR) in the onshore deliverable forex market to USD 100 million at the close of each business day. Banks must comply at the earliest, but no later than April 10, 2026. This is the first uniform hard cap in nearly 15 years, replacing the earlier system where bank boards could set higher limits (up to 25% of capital). The move aims to curb speculative positioning and excessive volatility in the USD/INR pair amid the ongoing 2026 Iran war.

The rupee has depreciated around 4% since late February, hitting record lows near ₹94.84 per USD on March 27, driven by surging oil prices (Brent spiking above $120 at peaks), higher import bills, widening current account risks, and heavy FII outflows. The war-induced disruption in the Strait of Hormuz has intensified pressure on India's energy imports and external balances. By restricting banks' ability to take large directional bets or arbitrage between onshore and offshore markets, the RBI seeks to promote orderly trading, reduce self-fulfilling depreciation pressures, and support rupee stability. The directive complements other tools like forex interventions from reserves and liquidity management. While banks may face short-term costs in unwinding positions, the measure signals the central bank's proactive stance to safeguard macroeconomic stability without immediate aggressive rate hikes. Markets will closely watch compliance and any further easing of geopolitical tensions for rupee relief in the coming weeks.

India’s official diplomatic position remains one of neutrality. There are no reports of direct Indian military involvement, including any high-potential ground operations by Indian soldiers in Iran or related theaters. Diplomatic efforts have focused on safe evacuation of nationals, secure maritime corridors (with Indian Navy presence noted in the broader Indian Ocean), and calls for de-escalation. India has condemned attacks on shipping and emphasized stability without taking sides in the conflict.

Impact on Stock and Financial Markets ─ Iran War

Indian equities have faced sustained risk-off pressure since late February. The Nifty 50 and BSE Sensex have declined approximately 9.5-10% cumulatively since the war’s escalation, with multiple weeks of losses and sharp single-session drops. Market capitalization has eroded significantly—estimates of losses are in the range of tens of lakh crore (trillions) during peak volatility phases.

Sectoral performance has diverged:

Underperformers ─ higher input cost pressure, margin pressure, and demand concerns

●      Oil marketing companies (OMCs)

●      Aviation (ATF cost surges)

●      Automobiles,

●      Chemicals, paints,

●      Infrastructure, realty, and broader cyclicals

●      Rural & agri-market-savvy tractors, two-wheelers, seeds/pesticides (chemicals), and also FMCG and MFIs (direct/indirect effects)—higher cost of Fertilizers & rural distress

●      Downstream sectors (Fertiliser users) ─ like Chemicals, resins, Plywood, etc.

●      Downstream sectors such as LPG users (via higher & scarce LPG) and quick-service restaurants (QSRs) could also face closure & margin pressure.

●      Potential gig workers’ distress (SWIGY/Zomato) may also affect the urban gig economy.

●      Banks underperformed due to

o   Growing NPA crisis: almost 20% of the Indian population may be regarded as middle class (₹12-24 lakhs net earnings/PA); out of that, around 50% are now in an acute debt trap.

o   Lower bond prices (GSEC) are negative for the HTM bond portfolio, especially for PSU banks.

o   The sudden resignation of HDFC Bank's part-time chairman (Atanu Chakraborty) raises a serious issue of corporate governance

●      Middle Eastern (GCC) savvy companies/sectors

Relative Resilience:

●      Defence stocks have seen selective interest in geopolitical TENSIONS (WAR) premiums

●      Precious metals (gold) attracted safe-haven flows;

●      Some exporters and domestic defensives held better—like IT/Techs and Pharmaceuticals

●      Fertilizers (outperformed as Prices soared on supply chain disruptions)

FIIs turned net sellers amid the turmoil, while domestic institutions offered partial support. Global cues, including oil volatility and equity sell-offs elsewhere, amplified domestic weakness. Bond yields faced upward pressure from inflation and fiscal risks, though RBI actions helped contain extremes. By mid-to-late March, partial recoveries occurred on ceasefire hopes and oil price pullbacks (e.g., Nifty gaining 4% over two sessions around March 25 when Brent slipped below $100). However, markets remained volatile into the final week of March, posting further weekly losses amid ongoing uncertainty.

Nifty may continue to be under muted earnings growth

In the stock market, everything is about earnings; everything else is noise, and the current Iran war crisis may be a long-awaited trigger for the correction, around 17% from the recent lifetime high (~26400). The TTM (Q3FY26) Nifty EPS was around 740 vs 739 sequentially (+0.2%) and 728 yearly (+1.7%).

At the current trend and run rate, the FY26 Nifty EPS is set to come around 762 vs FY25 EPS 726 and FY24 EPS 909. The sudden drop in Nifty EPS is primarily due to the bonus issue and subsequent Equity & EPS dilutions. If there were no RIL and HDFC Bank dilutions, the NIFTY EPS might be around 1000. In any way, although the actual Nifty EPS may now hit around 1000 by FY28-29, if the Iran war escalates further, Nifty EPS may be able to reach 1000 only by FY30. But the market may still believe in the NSE-published Nifty PE and the back calculation to Nifty EPS. The NSE does not calculate Nifty EPS; it calculates Nifty PE by dividing gross earnings of Nifty constituents by market caps, not by equity capital (number of equity shares).

At around the estimated FY26 EPS of 762, FY27-28 EPS of 839 and 922, the average fair value of Nifty may be around 17152-19967 and 20754 (worst-case scenario). But as the market is already discounting 1000 EPS for Nifty without considering the bonus issue of RIL and HDFC Bank, or for FY 29-30, with the bonus/equity/EPS dilution. Thus, in that scenario, 20000/22000-15000 may be a reasonable base-worst-case fair value.

Technical outlook: Nifty, Bank Nifty, and USDINR-Futs

Looking ahead, whatever may be the narrative, technically Gift Nifty Future (CMP: 22500) now has to sustain over 22700 for a further rally to 23000/23200*-23600/24000/24200* and 24700/25050* and 25500*/25800-26100/26500* in the coming days; otherwise sustaining below 22500, Gift Nifty may fall to 22300/22000-21800*/21500 and 21000/20600-18850/18000-17500/16850 and even 14350 in the coming days (base to worst case scenario).

Similarly, Bank Nifty Future (50275) now has to sustain over 50700 for a recovery to 51300/51600*-53200/54200 and 55000/55800-56000/57800 and 58400*/58800-60000/61500* in the coming days; otherwise, sustaining below 59500-49800, BNF may fall to 48900/48400*-47400/46700 and 44200 and even 40500/38300 in the coming days.

Looking at the chart, technically, USDINR Future (CMP: 94.50) now has to sustain over 96.00 for a further rally to 98/100-103/105 in the coming days; otherwise, sustaining below 95.50 may further fall to 93.90/92.90-92.00/90.50 and 90.00-89.00 in the coming days.

 

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