A single geopolitical event can significantly disrupt the trajectory of the global economy, and the ongoing Iran War is increasingly emerging as one such defining episode. Notably, this shock comes within five years of the COVID-19 pandemic, which had already unsettled global economies. As a result, uncertainty has once again taken centre stage, with supply chains facing renewed disruptions. What is particularly concerning is the absence of clarity on the duration of the conflict, the eventual shape of the post-war global economy, and the long-term structural implications it may leave behind.
This period poses a complex challenge for global policymakers and equity market participants, especially in India. While the Indian economy has demonstrated resilience—evidenced by robust GST collections of approximately ₹2 lakh crore in March—the near-term outlook remains uncertain. A key concern is the sharp escalation in crude oil prices. From around $69 per barrel prior to the conflict, prices have surged to nearly $120 per barrel. Equally concerning is not just the magnitude of the increase, but the pace at which it has occurred, leaving little room for economies to adjust.
Beyond pricing, the availability of energy resources has become a critical issue. The conflict has severely impacted natural gas supplies, and disruptions are likely to persist well beyond the cessation of hostilities. For instance, the Ras Laffan Industrial City in Qatar—which accounts for nearly 17% of Qatar LNG capacity—has suffered significant damage and may take several years to fully restore operations. Such large-scale infrastructure destruction underscores that the economic consequences of the war could extend far beyond its immediate timeline.
India has so far managed the situation relatively well. Unlike several neighbouring countries that have passed higher fuel costs on to consumers, domestic petrol and diesel prices have largely remained unchanged despite the near-doubling of crude oil prices. While this may partly be attributed to the electoral cycle, there is a high probability that prices may be revised upward post-elections. The key uncertainty lies in the extent of such increases. Notably, private sector players such as Nayara Energy have already raised petrol prices by ₹5 per litre and diesel by ₹3 per litre. Elevated fuel prices are inherently inflationary and tend to cascade across sectors and income groups.
The government is simultaneously navigating multiple macroeconomic challenges. Higher inflation typically necessitates tighter monetary policy, leading to higher interest rates and subdued consumption. Consequently, private sector capital expenditure is likely to be deferred. Additionally, a higher import bill exerts pressure on the rupee and complicates fiscal consolidation efforts. The natural gas shortage is further exacerbating the situation, with several industries scaling back operations or temporarily shutting down, thereby affecting overall economic activity.
Growth projections are already reflecting this strain. Prior to the conflict, India’s GDP growth was expected to exceed 7%. However, current estimates suggest a moderation to the 6.5–6.75% range. Should the conflict prolong or supply disruptions intensify, these projections may come under further downward pressure.
Foreign Portfolio Investors (FPIs) have responded decisively to these uncertainties. March witnessed one of the highest monthly outflows since FPIs began investing in India. Over the past two years, sustained selling has resulted in FPIs becoming cumulative net sellers since 2020, effectively erasing post-pandemic inflows. Currency depreciation further compounds their concerns, as a weakening rupee erodes returns, reducing the incentive for near-term re-entry until currency stability is restored.
For equity investors, this has been a particularly testing phase. March saw significant portfolio drawdowns, and investors who entered the market in the post-pandemic rally are now reassessing their risk appetite. Over the past two years, portfolios have largely stagnated, with many experiencing drawdowns in the range of 20–25%. In 2025, gains in gold and silver provided some diversification benefits. However, in the aftermath of the war, even precious metals have corrected, creating a challenging environment with limited hedging support.
Such periods are inherently difficult and often test investor conviction. Equity markets, by their very nature, are volatile and can challenge even the most disciplined participants. They tend to erode confidence, provoke emotional responses, and tempt investors into making irrational decisions. However, history consistently shows that those who maintain discipline and emotional control tend to emerge stronger over the long term. For many investors who entered the market post-COVID, this phase serves as a critical learning curve—highlighting that wealth creation through equities requires patience, resilience, and realistic expectations.
At this juncture, a pragmatic approach is essential. Investors experiencing heightened anxiety may benefit from reducing the frequency of portfolio reviews, as daily volatility can often lead to counterproductive decisions. While the current environment is undeniably challenging, it is important to recognise that such phases are temporary. Just as the Indian economy successfully navigated the disruptions caused by the pandemic, there is strong reason to believe it can withstand the current geopolitical turmoil as well.
Importantly, this may not be an opportune time to exit the markets. Valuations in several segments have corrected meaningfully, and while it is difficult to precisely identify the bottom, current levels could be closer to it than perceived.
Experience suggests that market bottoms are typically formed at the point of maximum pessimism—when uncertainty is at its peak, and investor sentiment is most fragile. By that measure, the current environment may well represent a peak in concern.