Domestic equities tumbled over 2 per cent on Monday, capping their steepest monthly decline since the pandemic-led rout of March 2020, as escalating tensions in the Middle East pushed crude oil prices sharply higher and clouded India’s growth and inflation prospects.

The Sensex fell 2.22 per cent, or 1,636 points, to close at 71,948 — its lowest level since February 14, 2024. The Nifty 50 declined 2.14 per cent, or 488 points, to settle at 22,331, the weakest since April 7, 2025. For March, both indices have dropped more than 11 per cent.

The broader market saw a sharp erosion in wealth, with the total market capitalisation of BSE-listed firms shrinking by ₹51.1 trillion, from ₹461.3 trillion to ₹412.2 trillion during the month.

The latest slump was triggered by a fresh escalation in West Asia tensions after Iran-backed Houthi forces joined the conflict, raising fears of prolonged disruptions to global energy supplies. Brent crude briefly surged past $116 per barrel, heightening concerns for India, one of the world’s largest oil importers.

Foreign portfolio investors (FPIs) remained heavy sellers, pulling out over ₹1.12 trillion during the month — the highest-ever monthly outflow in rupee terms, surpassing the previous record of ₹91,983 crore in October 2024. The scale of outflows was among the highest globally.

Both FPI as well as domestic investor sentiment was weighed down by tightening domestic financial conditions. The rupee weakened to record lows for the third straight session, breaching the 95-per-dollar mark despite central bank intervention. At the same time, the yield on the 10-year government bond climbed towards 7 per cent, its highest level in nearly two years.

Selling pressure was broad-based, with all sectoral indices ending Monday’s session as well as the month in the red. Mid-cap and small-cap indices declined 2.7 per cent on Monday and more than 10 per cent each in March.

 
Following the sharp correction, India’s valuations have eased, but analysts say the resolution to the West Asia conflict holds the key for market trajectory.

The Nifty 50 now trades at about 17 times its one-year forward earnings, roughly 13 per cent below its five-year average of 19.6 times.

Saharsh Kumar of Elara Capital said the market appears to be approaching a support zone. “At around 17.3 times one-year forward earnings, the Nifty is trading below its long-term average, placing it in a zone that has historically seen rebounds, barring extreme disruptions,” he said, adding that any easing in geopolitical tensions could limit further downside.

However, caution persists. Sailesh Raj Bhan, chief investment officer – Equity Investments at Nippon India Mutual Fund, said the duration of the crisis will be a key variable. “Elevated energy prices pose risks to both growth and earnings. Markets seem to be pricing in a relatively swift resolution, and any disappointment on that front could weigh on sentiment,” he said, recommending a disciplined asset allocation approach amid uncertainty.