Geopolitical uncertainties caused by the unproductive United States-Iran talks in Islamabad are likely to cast a shadow on equity markets on Monday.
Tensions mounted after US President Donald Trump ordered a naval blockade of the Strait of Hormuz on Sunday evening if Iran fails to keep this key waterway open for the passage of ships. These developments dent hopes of a sustained de-escalation that had buoyed sentiment last week.
The rupee is also seen to be under pressure after the talks ended without a breakthrough, market participants said, although the impact may remain contained because there has been no indication of a breakdown in the understanding on ceasefire.
The development dents hopes of a sustained de-escalation, which had buoyed sentiment last week.
Domestic equities had rallied sharply in the previous week, logging their best weekly gain in over five years as a tentative ceasefire between Iran and the United States (US) improved investor confidence and eased concerns over disruption in oil supply.
For the week, the Sensex surged 5.8 per cent and the Nifty 5.9 per cent — their strongest performance since February 2021.
Experts say the pause in negotiations has reintroduced a layer of uncertainty, particularly around crude-oil prices, which remain a key monitorable for the markets.
“Investors are trying to gauge how far apart the two sides remain, and for now the gap appears significant. The hope is that over the coming weeks it becomes bridgeable,” said Saurabh Mukherjea, founder and chief investment officer, Marcellus Investment Managers.
He added the market direction in the near term would hinge largely on energy prices. “If oil rises another 10 per cent, the markets could see a correction of 2-3 per cent.”
While market participants expect a downside on Monday, the extent of correction they are hoping for will be limited, given the recent pullback in valuations and hopes of diplomatic intervention.
“The Nifty 50 could see a decline of up to 2 per cent, but the downside may be limited as stocks have somewhat corrected,” said Ambareesh Baliga, an independent equity analyst.
“Various stakeholders may step in to persuade both sides to maintain the truce, even if the initial discussions may not have progressed as expected.”
Apart from geopolitical cues, investors will track the progress of the March-quarter earnings season, which is expected to play a pivotal role in shaping near-term market trends.
“Despite the geopolitical overhang, domestic triggers remain equally important. The fourth-quarter earnings season gathers pace this week, and the market’s focus is clearly shifting from headline numbers to forward guidance,” said Hariprasad K, founder, Livelong Wealth.
He noted that management commentary on demand visibility, margin sustainability, and structural themes would be critical. “Banking and financials, led by heavyweights such as HDFC Bank and ICICI Bank, will remain central to the index direction, while information-technology stocks like Wipro could continue to face pressure amid global demand uncertainties,” he said.
The Sensex on Friday ended at 77,550, up 919 points, or 1.2 per cent, and the Nifty 50 closed at 24,051, gaining 276 points or 1.2 per cent.
Foreign flows will also be watched. While selling by foreign portfolio investors (FPIs) moderated in recent sessions, they remain net sellers of ~48,213 crore so far this month.
On Friday, FPIs were marginal net buyers at ~672 crore while domestic institutional investors purchased equities worth ~410 crore.
Mukherjea also flagged broader macro concerns, noting that beyond oil, emerging constraints in gas supply could weigh on the economy.
“More than oil, the gas situation is emerging as a serious concern for India … Investors are, therefore, assuming the economy may face at least six months of gas shortages and will be looking for signs of how industries and households are coping,” he said, adding that the ongoing earnings season might reflect these pressures, with growth likely to remain in single digits.
Participants in currency markets said the absence of a deal could weigh on global risk sentiment and push prices of crude oil higher, a key negative for the rupee.
“Since there is no indication that the ceasefire is off, depreciation pressure (on the rupee) should be limited,” said the treasury head at a private bank.
Forex traders said that if crude-oil prices went up, the rupee was expected to remain weak, risking further depreciation towards 94-95 to the dollar in the near term.
On Friday, the Indian unit ended at 92.73.
It fell 9.85 per cent in FY26 due to outflows in foreign investment, with the war, which started on February 28, aggravating the situation.
In March, the Indian unit depreciated a little over 4 per cent. Following regulatory measures by the central bank in late March, the currency appreciated 2.24 per cent in April so far.
Yields on government bonds are also seen edging higher, tracking caution in global markets and concerns over inflation risks arising from any sustained increase in the prices of crude oil.
“Yields could slightly harden in early trade as geopolitical uncertainties typically feed into inflation expectations through oil. That said, the move should be contained as markets are not pricing in a full escalation,” said a treasury head at a state-owned bank.
The yield on the 10-year bond had crossed 7 per cent in late March following a surge in the prices of crude oil. It closed at 6.91 per cent.
“As long as the ceasefire understanding continues, even if fragile, the reaction in both the rupee and bond yields should remain measured. The markets are unlikely to take aggressive positions unless there is a clear escalation,” said a treasury official at a foreign bank.
Dealers added that the trajectory of crude-oil prices and further diplomatic developments would be closely watched, with both the currency and bond markets expected to remain sensitive to headlines in the near term.
