Indian equities staged a relief rally on Tuesday after US President Donald Trump postponed a planned strike on Iran’s energy infrastructure by five days, citing productive conversations with Tehran. 

However, gains remained capped as oil prices stayed elevated and hostilities between Iran and Israel persisted. 

The Sensex surged as much as 1,793 points, or 2.5 per cent, during the session before paring gains to close at 74,069, up 1,372 points, or 1.9 per cent. The Nifty ended at 22,912, higher by 400 points, or 1.8 per cent. Both indices logged their strongest gains since February 3. The  market capitalisation of BSE-listed firms increased by ₹7.6 trillion to ₹423 trillion. 

A day earlier, the Sensex had closed at its lowest level since June 2024, while the Nifty had ended at its lowest close since April 2025. 

Other Asian markets also trimmed gains, while most European benchmarks were in the red amid uncertainty over a resolution to the Iran conflict. 

Overnight, Iran launched missile and drone strikes on Israeli cities, including Tel Aviv, and targeted US bases in West Asia. In response, Israel struck western and central Iran, including Tehran. Israeli Defence Minister Israel Katz said operations would continue at full intensity. A media report also suggested that US allies in the Persian Gulf might join the campaign against Iran. 

Brent crude climbed back above $100 per barrel as optimism around de-escalation faded. Elevated oil prices risk fuelling inflation, straining global growth, and potentially prompting central banks to maintain a tighter monetary stance. Investors also remain wary of the broader economic fallout of the conflict, even if tensions ease in the near term.

“The West Asia conflict is entering a more precarious phase, despite recent signals of potential de-escalation. Attacks on energy infrastructure have heightened the risk of sustained supply disruptions,” said Seshadri Sen, head of research, Emkay Global.

“India faces an adverse terms-of-trade shock from rising energy prices, given its dependence on the region and limited strategic reserves. A prolonged conflict raises the risk of global stagflation and heightened volatility, with implications for India’s exports, remittances and capital flows,” Sen said.

According to Radhika Rao, senior economist at DBS Bank, as a net importer of oil and other key energy commodities, India faces twin pressures of a wider current account deficit and weaker capital inflows amid high prices and supply disruptions. “Inflationary pressures are also likely to build as costs adjust,” Rao said.