Sensex erases all Middle East war losses but is it too soon to forget the Hormuz factor?

After months of relentless selloff and investor pain, Dalal Street has staged a remarkable recovery that has pushed Sensex to levels seen only before the Middle East conflict ensued in late February.

Sensex briefly crossed 82,200 on Wednesday, marking the first time since the war began in late February. The index has now skyrocketed a whopping 11,000 points from its 52-week low level hit at the beginning of last month. The benchmark index continues to hold at the pre-war levels on Thursday, bringing much-needed relief to investors since the infamous selloff that began early in March this year.

Sensex, Nifty’s plunge following the beginning of Middle East war

The stock market was shut on the last Saturday of February when headlines read that US and Israel’s joint air strikes had killed Iran’s Supreme Leader Ayatollah Ali Khamenei. Analysts had already begun sounding the alarm even before Dalal Street opened, and the warnings came true.


What followed was a conflict that further escalated in the oil-rich Middle East and continues to this day. The rising tensions choked off the Strait of Hormuz, a critical waterway that accounted for more than 20% of the global oil shipments back then. As a result, oil prices soared to as high as above $120 per barrel. India is the second biggest global oil importer after China and is highly dependent on imported crude oil.

Sensex plunged nearly 9,340 points in just March 2026 alone, while Nifty dropped 2,500 points. The stock market recovered slightly over the next few months as the AI frenzy fizzled out, with analysts noting India’s anti-AI advantage. Interim peace deals in the Middle East conflict further boosted the market.

However, the bulls failed to hold on to the momentum as more headwinds emerged. The Middle East war escalated inflationary pressures, leading to a global rate hike cycle. Bond yields soared to multi-decade highs, while FIIs massively sold Indian equities. In this background, Sensex dropped to a 52-week low of 71,293, and Nifty fell to 22,180 earlier in October.

Sensex, Nifty bulls make a strong comeback

The Indian stock market has staged a remarkable recovery since the middle of October, with the rally intensifying in November. While easing oil prices and rupee rebound have been helpful, the biggest factor has been the strong return of the FIIs.

Foreign investors have massively increased their purchases of Indian equities, after a sharp selloff of Rs 2.95 lakh crore in the first 10 months of 2026. FIIs bought Rs 12,563 crore of Indian equities on Wednesday, taking their total November purchases to nearly Rs 69,000 crore. That has already surpassed the previous monthly record of Rs 66,135 crore set in December 2023.

Also read | Rs 80,000 crore FII buying sparks explosive rally on Dalal Street. Will RBI rate hike worries kill the party?

However, domestic investors who have been the bedrock of the Indian market even when FIIs hit the sell button consistently earlier this year, have been heavily selling Indian equities recently. Many analysts pointed out that this may be driven by profit booking as their institutional investors are finally reaping fruits of heavily buying Indian stocks during the previous selloff.

Analysts have also been highlighting better-than-expected Q2 earnings from India Inc. as another major factor boosting market sentiment. “The near 24% earnings growth in Nifty 50 in Q2 is a 12 quarter high and has compressed the forward PE for Nifty 50 to fair levels,” said V K Vijayakumar, Chief Investment Strategist at Geojit Investments.

Around 181 companies reported at least a doubling of net profit from a year earlier during the July-September quarter of the ongoing financial year. An analysis of quarterly results data compiled by Ace Equity shows that companies across banking, metals, pharmaceuticals, energy, consumer businesses and industrial manufacturing reported YoY profit growth of more than 100% in the second quarter of FY27.

Also read | Up to 12,000% growth! 181 companies more than doubled profits in Q2 earnings boom for India Inc

What lies ahead for Dalal Street?

While the market rebound has been impressive, caution may still be warranted. Oil prices remain volatile and sensitive to comments by US President Donald Trump and Iranian leaders, whose earlier explosive comments have sharply moved the market. Goldman Sachs recently raised its oil price forecasts, citing increasing risks to global supplies. The investment bank warned that Brent crude could climb to $140 per barrel in 2027 if oil production across the Gulf region remains significantly below its 2025 average. JPMorgan analysts also highlighted the uncertainty surrounding the conflict, saying it remained difficult to predict how the war would unfold.

Nifty’s rally of around 10% in seven trading sessions so far in November is being led primarily by the aggressive buying by the FIIs, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He noted that the tug of war between the FIIs and DIIs till November saw the FIIs on the sell side and DIIs on the buy side. Now the positions have been completely reversed, with FIIs turning into aggressive buyers and DIIs turning into consistent sellers. This FIIs vs DIIs position will set the market trend in the near term, according to the analyst.

This trend of FII buying is likely to continue and has the potential to reach an all-time high number, Vijayakumar said. “Impressive earnings growth as evidenced by the good Q2 results and the macro relief from lower crude prices (Brent around $92) will support the rally. DIIs may continue profit booking, putting brakes on the rally,” he said.

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Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.