The breakdown in Iran–US negotiations could trigger a knee-jerk reaction in Indian equities, keeping markets volatile despite signs that investors are becoming less sensitive to geopolitical shocks.
The Nifty 50 and Sensex ended last week in the green, snapping a five-week losing streak. But a Mint analysis shows a more telling shift: the intensity of the sell-off has steadily eased since the conflict began, with sharp early declines giving way to progressively smaller losses.
On Monday, the Nifty 50 fell 1.92% to 23,589.60 and the Sensex slid 2.08% to 75,937.16 as of 9:15 am.
The sell-off began with a jolt — between 27 February, the last trading session before hostilities escalated, and 6 March, the Nifty and Sensex fell about 3% each as the conflict broke out, followed by a sharper drop of over 5% the next week. Markets then paused, with a largely flat week, before slipping again by over a percent in the week of 23 March.
The attacks began on 28 February.
From there, the pressure eased. Losses narrowed to 0.4% for the Nifty and 0.5% for the Sensex the following week. And last week, both indices swung back into the green, rallying nearly 6% each.
A closer look at India VIX, the fear gauge, reinforces this trend.
Volatility surged sharply with a 45% spike in the first week of the conflict, but has since cooled off. It rose 14% the following week and barely 1% after that. While there was a brief uptick of 17.5% in the week of 23 March, the momentum quickly faded, with volatility slipping to 4.8% the next week and dropping a sharp 26% last week.
Does this rebound suggest that markets have already priced in a prolonged phase of elevated volatility?
“The recent declining trend in India VIX signals that uncertainty is likely to end, with volatility to steadily taper off from here,” said Kkunal Parar, vice president – technical research and algo at Choice Equity Broking.
Markets are now getting used to this volatility, he said. While volatility is likely to stay elevated, he believes the intensity should gradually ease — something Mint’s analysis already reflects.
High-stakes talks between Washington and Tehran are already fraying, with the fragile ceasefire barely holding and tensions shifting toward the Strait of Hormuz and a secondary front in Lebanon.
Even as Islamabad hosts uneasy diplomacy, fresh flashpoints — from shipping curbs to sharp US reactions over strains in mediation — signal that the truce may be more of a pause than lasting peace.
Negotiations between Iran and the US in Pakistan, that lasted for 21 hours, ended without a deal, with Tehran blaming “excessive demands” from the American side for the breakdown, reports said.
It is a very complex task to get a durable peace accord, said market expert Ajay Bagga.
The temporary ceasefire was based on a big chasm between the US’ 15 points and Iran’s 10 points. So, the hope was that negotiations would lead to bridging this gulf and the evolution of a mutually acceptable deal, he added.
However, the bombing of Lebanon by Israel has put a spanner in this expectation, and Iran has stopped the further passage of ships through the Strait of Hormuz in retaliation, Bagga said.
“This has cast a cloud over progress of the negotiations and markets are selling off.”
Dhiraj Relli, managing director & chief executive officer of HDFC Securities, says, “In the current environment, markets are likely to remain sensitive to global cues, and episodic volatility should be expected rather than viewed as an anomaly”.
He pointed out that Indian markets had already been relatively subdued compared to global peers in the preceding months, which meant that a portion of the negative news flow was arguably priced in.
That said, he noted that historically, such grey swan events have been followed by sharp rebounds, underscoring domestic resilience.
Retail participation, relatively healthy corporate balance sheets, and a still-robust domestic consumption backdrop have repeatedly attracted fresh buying at lower levels, even as foreign institutional flows have remained cautious.
Except for a brief buying spurt in February, foreign institutional investors (FIIs) have largely stayed on the sell side in Indian equities through 2026, offloading shares in January, March, and continuing the trend into April.
So far this month, FIIs have net sold ₹58,213 crore, even as domestic institutional investors (DIIs) stepped in with purchases worth ₹35,572 crore — effectively cushioning the market and countering the persistent foreign outflows.
Still, Relli thinks that the near-term outlook remains clouded by external uncertainties.
According to him, global headwinds, ranging from geopolitical conflicts to tighter financial conditions, continue to pose risks, and their spillover effects on capital flows and currency stability are critical variables for investors to keep an eye on.
Mark Haefele, Global Wealth Management Chief Investment Officer at UBS Switzerland AG, said in its 8 April report that the ceasefire is clearly a positive development and could presage a sustainable end to the conflict.
“At the same time, various issues remain unresolved, so investors should be mindful of the potential risk of re-escalation.”
Dipti has spent nearly a decade happily knee-deep in the fast-moving, occasionally nerve-wracking, and always fascinating world of stock markets, tracking everything from sharp sell-offs to surprise rallies, and the narratives that drive them. She began her journalism journey at Informist, sharpened her market instincts at CNBC Digital and Moneycontrol, and is now charting new territory with Mint. Here, she is exploring new ground, bringing together sharp analysis, on-ground insights, and a keen eye for what really moves markets.<br><br>Before stepping into journalism, Dipti studied law and worked with a solicitor firm for close to three years, an experience that gave her a strong foundation in analytical thinking, contracts, and corporate structures. But the pull of markets and storytelling proved stronger, prompting a switch from law to journalism.<br><br>She writes about stocks and investments, but that’s only part of the story. Dipti also teams up with market experts to turn complex trends into sharp, easy-to-understand videos, occasionally peeks at deals and acquisitions, and regularly picks the brains of industry leaders. Somewhere between earnings calls, market swings, and boardroom chatter, she’s always looking for the next story that explains what’s really moving the markets.