The contrast with 1991 illustrates how much the macro backdrop has changed. During the Gulf War, crude oil surged from $17 to $36 per barrel. India’s foreign exchange reserves fell to $1.1 billion, covering barely three weeks of imports. The rupee was devalued by about 18% in July 1991. That episode evolved into a balance-of-payments crisis rather than remaining a market correction.Today, the macro buffers are stronger. India holds significantly higher foreign exchange reserves and the Reserve Bank of India has greater flexibility to manage currency volatility. The report describes this transition as a move from fragility to resilience.
Subsequent geopolitical episodes support that shift. During the Kargil conflict in 1999, the Nifty’s drawdown was around 0.8%. Over the next three months, the index gained roughly 32%, and about 29% over the following year. Despite higher war-related expenditure and inflation pressures, equities recovered as earnings and growth expectations remained intact.
In more recent events, the recovery windows have shortened further. After the Uri surgical strikes in September 2016, the initial market dip was about 2% and was reversed within days. Following the Pulwama attack in February 2019, the market reaction was limited.
Following the Balakot airstrike, when the Nifty fell by between 1.8% and 3.5%, a recovery occurred within less than two weeks. In May 2025, during Operation Sindoor, the drawdown was about 0.59% and the index recovered on the same day.Marketsmith attributes the quicker normalization to stronger domestic liquidity, improved information flow and better macro buffers. “Recovery windows are compressing, because both market structure and information speed have changed,” the report said.
The current Iran-linked tension is viewed as structurally different from border events with Pakistan. The concern lies in energy logistics rather than localized military escalation. About 20% of global oil shipments pass through the Strait of Hormuz, and roughly 40% of India’s crude imports are linked to that route. The primary risk is a sustained disruption to physical oil supply.
The report outlines the macro sensitivity to crude prices. A $10 per barrel increase in oil can add 0.5% to 1% to consumer inflation. Each $1 rise in crude increases India’s annual import bill by approximately $2 billion. A sustained $10 increase can widen the current account deficit by 0.3% to 0.4% of GDP. “The market isn’t afraid of missiles in isolation. It’s afraid of sticky inflation prints, INR weakening, and delayed rate cuts,” Marketsmith said.
Its scenario analysis shows that duration matters more than the initial spike. With Brent at $75, inflation remains stable and the current account deficit is around 1% of GDP. At $85, the deficit may widen to 1.4-1.5%, with inflation rising by about 50 basis points.
At $100 or higher, the deficit could move toward 2-2.5% and inflation may rise by roughly 150 basis points. Only in a prolonged $120-plus scenario does the stress approach systemic levels, with the current account deficit crossing 3% of GDP and inflation pressures intensifying.
Another structural change is domestic liquidity. Monthly systematic investment plan inflows exceeding Rs 31,000 crore provide consistent support to markets. Domestic institutional investors now offset foreign outflows more effectively than in earlier cycles. As the report noted, domestic flows are no longer marginal; they form a stable base for the market.
Sectoral impact varies. Rising crude prices pressure aviation, chemicals and oil marketing companies if retail price pass-through is delayed. Upstream energy companies benefit from higher realizations. Defence stocks often see sentiment support during heightened security cycles, while gold-linked assets can gain during risk-off phases and rupee weakness.
Marketsmith’s investment view is that geopolitical events typically create short-term volatility. “Geopolitical shocks are usually short-term volatility events. Only sustained oil-supply disruption changes the medium-term trend,” the report said. It added that investors should track crude price duration, rupee movement, inflation expectations and policy response rather than react solely to headlines.
The broader conclusion is that while Indian markets remain sensitive to oil and currency dynamics, they are better equipped to absorb external shocks than in previous decades. The key variable remains crude oil and the extent to which price increases persist.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)