US-Iran Conflict Drives Indian Stock Market Decline

Indian equity benchmarks experienced a sharp downturn starting September 2, 2026, following overnight military strikes between the Federal government of the United States and Iran. The BSE Sensex and NSE Nifty plummeted in early trade, with the Sensex dropping over 700 points in its opening minute as Brent crude oil surged to a six-week high of approximately $96 per barrel. The volatility was driven by fears of supply disruptions in the Strait of Hormuz and renewed inflation concerns.

Market pressure intensified as US Treasury yields reached three-year highs after Federal Reserve Chair Kevin Warsh suggested potential rate hikes if inflation targets are not met. This combination of rising energy costs and higher yields triggered a three-session losing streak for Indian indices. While the Nifty Oil and Gas index showed resilience, the auto, IT, and realty sectors faced heavy selling, with companies like Eicher Motors and Bajaj Auto among the biggest losers.

By September 3, the Sensex closed at 76,152.86, down 0.55%, while the Nifty 50 settled at 23,873.45. Despite the equity slump, the Indian rupee stabilized at 94.48 against the US dollar, supported by the mobilization of $127 billion in FCNR deposits. Analysts noted that while strong domestic GDP growth and foreign exchange reserves provide a cushion, the markets remain vulnerable to the escalating Middle East conflict and tightening US monetary policy.