Indian stock market remains volatile amid mixed signals around US-Iran war. Is the worst over?

Indian stock market: The first five months of 2026 have been a challenging phase for the Indian stock market, exacerbated by foreign capital outflows, geopolitical unrest in West Asia, and the depreciation of the Indian rupee.

Amid these headwinds, the Sensex and Nifty 50 have declined 10.83% and 8.54%, respectively on a year-to-date basis.

The Indian stock market is witnessing a month of intense, choppy trading in May. The Nifty 50 has largely consolidated in a tight but volatile range, attempting to hold on to the 24,000 psychological support level. This comes on the back of a 7% increase seen in April.

Market experts said that while the sentiment has improved, investors remain cautious and highly sensitive to geopolitical headlines, with near-term market direction likely to be driven by developments surrounding the US–Iran negotiations, movements in crude oil prices, rupee trends and institutional flow dynamics.

On Wednesday, benchmark equity indices Sensex and Nifty turned negative after opening higher, as investors remained cautious due to geopolitical tensions and persistent foreign fund outflows.

The 30-share BSE Sensex initially gained 127.83 points to reach 76,137.53, while the NSE Nifty advanced 36.45 points to 23,950.15 in early trade. However, the indices later lost momentum and slipped into the red. The Sensex was trading 77.80 points lower at 75,935.11, while the Nifty declined 29.15 points to 23,897.80.

What’s driving the Indian stock market?

According to market experts, the hopes of a resolution to the US-Iran conflict are improving investor confidence. Recent comments from the US administration have strengthened this belief.

US Secretary Marco Rubio said, “Either there is going to be a good deal, or there isn’t going to be one,” while also stating that Donald Trump held a “historic call” with regional leaders and that there is strong alignment on a preliminary draft agreement.

Trump also said that Saudi Arabia and other nations should join the Abraham Accords, signalling that the US is trying to push for broader regional stability and normalisation instead of a deeper conflict.

Abhinav Tiwari, Research Analyst at Bonanza, however, noted that for Indian markets, the biggest risk was never only the war itself, but the economic impact that could come from it.

India remains heavily dependent on West Asia for crude oil, LNG and trade routes. During the peak of tensions, crude oil prices surged sharply, freight and insurance costs increased, and fears around disruptions in the Strait of Hormuz created panic across global markets.

Tiwari further explained that if oil remains sharply above the USD 90-100 per barrel range, it could create pressure on inflation, fiscal balances, the rupee and bond yields. That remains one of the biggest monitorable factors for markets going forward.

Is the worst fall over?

Devarsh Vakil, Head of Prime Research, HDFC Securities, in an interview with Mint, said that near-term direction will depend on how geopolitical tensions evolve, crude oil stays contained, and whether foreign fund flows remain stable; those are the main monitorables for the market in the coming weeks.

“Given the evolving situation in the Middle East and the structural macro impact of the war, while markets may remain volatile in the near term, the worst part of the correction appears to be behind us for now. What is reassuring is that the earnings season so far has been broadly better than feared, with companies delivering largely in line or modestly better-than-expected results and no major negative surprises at the broader market level. That helps cap downside because markets had already discounted a fair amount of caution, especially around near-term growth and sentiment,” Vakil told Mint.

Vakil further explained that if crude remains contained and earnings revisions remain positive, the market can stage a near-term reversal, especially in sectors with visible growth. A sustained rebound will likely need confirmation from both macro calm and continued earnings resilience.

Nikhil Gangil, CIO at Instrinsic Value, said that the market has recently formed what appears to be a “long-term bottom after nearly 18–20 months of correction.” Given that backdrop, he doesn’t see a strong reason for the market to undergo another major correction. “It may consolidate for some time, but that’s different from a significant decline,” he added.

Meanwhile, Tiwari of Bonanza believes that it is still too early to conclude that all risks are over as the situation remains sensitive, and geopolitical tensions in West Asia can change quickly.

“Even if direct conflict reduces, elevated energy prices and higher logistics costs could continue for some time and still keep pressure on inflation and corporate profitability,” he added.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.