Both Nifty bulls and bears left guessing as Iran war trajectory gives mixed signals to investors

Indian stock markets staged 2% recovery on Tuesday even as conflicting statements from Washington and Tehran left traders uncertain whether the Middle East war was nearing resolution or headed for deeper chaos, with the crucial Strait of Hormuz remaining shut to a fifth of global oil and gas flows.

US President Donald Trump postponed his threat to bomb Iranian power plants by five days, claiming the US and Iran had held “very good and productive” conversations yielding “major points of agreement” toward ending the conflict that began on February 28. But Iran's parliament speaker immediately denied any negotiations were underway, accusing Trump of issuing false statements to calm energy markets, while Iranian officials vowed to continue fighting.

The whiplash left the Sensex and Nifty up just 1% Tuesday, well short of the 3-4% rally that GIFT Nifty’s Monday evening levels signaled after Trump’s initial comments. Brent crude jumped 4% to $104/barrel, reversing Monday’s 10% crash, as traders questioned whether genuine diplomacy was underway or Trump was simply retreating from volatility-inducing threats.


“The market is reacting in a sensible way,” said Adrian Mowat, EM equity strategist. “When he tweets that there have been negotiations with the Iranians and they then deny it, you can understand why the market lost confidence in the rally. At the moment, I really do not see any signals from the United States, Iran, or even Israel that this conflict is coming to a rapid close.”

The war, which has all but halted shipments through the Strait of Hormuz, has created a murky picture for investors trying to assess peace prospects. Trump told reporters the talks had produced “many, like 15, points” of agreement, writing on Truth Social about a “complete and total resolution of hostilities in the Middle East.” Iran denied engaging in any direct negotiations, while fresh waves of fighting continued.

Trump's policy track record has kept markets wary, with traders uncertain whether his statements mark the start of genuine negotiations or simply another reversal.

Still, some analysts see elevated odds of peace. “The probability of peace is significantly elevated, and we think markets will aggressively price that in,” said Emkay Global's Seshadri Sen. “India, obviously, is a bigger beneficiary relative to other global markets because of its high exposure to imported crude.”

Sen expects Brent to retrace to $75-80 per barrel once clarity emerges, with OMCs, private banks, NBFCs, and autos the best recovery plays. The Nifty fell 5% in the last three sessions on $2.5 billion of foreign outflows. “There is still some uncertainty, and the Strait of Hormuz is still shut, though peace looks highly likely now and is our base case assumption,” Sen said.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted the market appears to be pricing in war’s end, with August US oil futures trading at $80, but warned of “excessive volatility in response to news regarding the war” in the near term.

“Politics is turning out to be as volatile as the market,” Vijayakumar said.

“President Trump signalled a 5-day halt to attacks on Iran and talked about ‘productive’ talks with the Iranian leadership. Immediately, Iran's foreign ministry denied this.”

A major drag remains sustained FII selling despite the sharp correction, driven by rupee weakness. “If some sort of stability is to emerge in the market, the rupee should stabilize first,” Vijayakumar said, adding IT and pharmaceutical segments are likely to remain resilient amid currency depreciation.

Iran later acknowledged attempts to get diplomacy going through mediators, further muddying the picture for investors trying to gauge whether India's oil-import-heavy economy faces relief or prolonged pain. Sen noted it may take 2-3 months for the economy to normalize, but asset markets will discount the peace dividend immediately, with the rupee potentially bouncing back to pre-war levels around Rs 91/USD from current levels and the 10-year bond dropping to 6.65% from 6.83%.