How We View the Recent Volatility
The recent market volatility needs to be seen in a broader context. For more than a year now, the Indian economy has been navigating multiple global headwinds-ranging from tariff-related uncertainties earlier to the current escalation of geopolitical tensions. While markets had begun to find some relief after tariff concerns eased, fresh uncertainty has emerged with the ongoing Israel-Iran conflict, further compounded by the direct involvement of the United States.
These developments have had a clear spillover effect on global and Indian capital markets. Structural investment narratives have temporarily taken a back seat, while commodities-particularly crude oil-have moved sharply higher. Crude rallied nearly 7% in a single session, which is a key concern for a crude-import-dependent economy like India. To put this in perspective, every $1 increase in crude prices adds roughly $2 billion to India’s annual import bill, putting pressure on the trade balance, inflation, and currency stability.
How Has D-Street Reacted to Wars in the Past?
Historically, Indian markets have demonstrated resilience during periods of geopolitical stress. While short-term corrections are common, recoveries have often been swift once uncertainty fades. Past instances highlight this trend clearly:
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Gulf War I (1990–91): Sensex recovered ~15%
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Kargil War (1999): Sensex recovered ~37%
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US–Afghan War (2001): Sensex recovered ~19%
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US–Iraq War (2003): Sensex corrected ~7%
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Arab Spring (2011–13): Sensex recovered ~11%
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Russia–Ukraine conflict (2022–present): Sensex rallied ~39%
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Operation Sindoor (May 2025): Sensex corrected ~1.5%
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India–Pakistan Ceasefire (May 2025): Sensex rallied ~4% in a single day
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Iran–Israel conflict (June 13–24, 2025): Sensex rallied ~1.5%
The key takeaway is that while geopolitical shocks create volatility, they have rarely derailed long-term market trajectories.
Where Do We Stand Today?
On a CY2026 YTD basis, Indian equities have already seen a reasonable correction;
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Nifty 50: down ~4%
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Mid-caps: down ~6%
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Small-caps: down ~9%
We expect volatility to persist in the near term as global cues remain fluid. However, markets tend to look beyond headlines and anchor themselves to fundamentals-most importantly, corporate earnings.
Earnings Continue to Be the Strongest Anchor
Corporate performance continues to provide confidence amid global uncertainty. India Inc has delivered approximately 13% revenue growth and 11% net profit growth in FY26 YTD. According to HDFC AMC research, earnings are expected to sustain a healthy ~17% CAGR going forward.
Our View Going Forward
While war-like situations understandably trigger short-term nervousness, history suggests that D-Street recovers faster than anticipated once uncertainty stabilizes. In our view, the recent correction driven by the Israel-Iran conflict is likely temporary in nature.
Corporate earnings have remained strong in the preceding quarters, and we believe this momentum will continue through the remaining quarters of FY26 and into FY27. Supportive factors such as a low base effect on margins, ongoing government initiatives, and resilient consumer demand further reinforce this outlook.
In summary: the current volatility appears more like a brief disruption rather than a structural breakdown. Long-term fundamentals remain intact, and earnings continue to be the most reliable compass during periods of geopolitical noise.