Domestic equities retreated from last week’s sharp rally after peace talks between the United States and Iran collapsed over the weekend, denting investor sentiment and pushing crude oil prices back above the $100 mark.
After tumbling as much as 2.2 per cent, or 1,682 points, in intra-day trade, the Sensex recovered a significant portion of its losses to settle at 76,848, down 703 points, or 0.9 per cent. The Nifty 50 ended at 23,843, also lower by 0.9 per cent, or 208 points. The total market capitalisation of BSE-listed firms declined by Rs 2 trillion to Rs 449 trillion, while India VIX — the volatility gauge — jumped 8.75 per cent to 20.5.
Foreign portfolio investors (FPIs), who had briefly turned net buyers on Friday, resumed their selling, pulling out nearly Rs 2,000 crore on Monday.
Risk appetite weakened following the breakdown of negotiations between Washington and Tehran over Iran’s nuclear programme. The collapse of talks prompted US President Donald Trump to threaten a blockade of the Strait of Hormuz, with the US military indicating it could restrict maritime traffic to and from Iranian ports.
The escalation heightened concerns over potential supply disruptions from the region, a key artery for global energy flows. The Strait of Hormuz handles nearly a fifth of the world’s oil shipments, making it a critical chokepoint. Brent crude surged past $100 per barrel, rising over 7 per cent. Rising oil prices tend to weigh on import-dependent economies such as India.
Monday’s decline comes after domestic equities logged their strongest weekly gains in over five years in the previous week, aided by optimism around a tentative ceasefire between the US and Iran, which had temporarily eased supply concerns.
“Markets continue to draw limited support from last week’s ceasefire framework, which remains intact for now, encouraging selective buying and a buy-on-dips approach despite the initial negative reaction to the breakdown of talks and the proposed US naval blockade,” said Vinod Nair, head of research at Geojit Investments.
Looking ahead, investors are expected to closely track the ongoing fourth-quarter earnings season.
“While the immediate impact on Q4FY26 earnings is likely to be manageable, prolonged tensions in the Middle East could have more meaningful implications for Q1FY27. Volatility is expected to remain elevated, with markets closely tracking geopolitical developments alongside earnings quality and management commentary,” Nair added.
Market participants said the sharp recovery from the day’s lows reflects expectations that diplomatic efforts could resume.
“The war has put the global economy under significant stress, and there will be pressure on all sides to return to the negotiating table,” said Chokkalingam G, founder of Equinomics.
Market breadth remained weak, with 2,640 stocks declining against 1,754 advancing. All but four Sensex constituents ended lower. HDFC Bank, down 2.02 per cent, was the biggest drag on the index, followed by Reliance Industries, which fell 2.6 per cent.
Losses in the broader market were relatively contained, with the Nifty Midcap 100 and Nifty Smallcap 100 indices declining 0.6 per cent and 0.5 per cent, respectively. All sectoral indices on the NSE ended in the red, led by the Nifty Auto index, which dropped 2.1 per cent amid concerns over proposed policy changes favouring electric vehicles in Delhi. Broader market small- and mid-cap indices fell about half a per cent each. Domestic institutions injected Rs 2,400 crore into the markets.