US-Iran Conflict Escalation Crashes Indian Equity Markets

Indian equity markets suffered a sharp crash between June 1 and June 3, 2026, driven by a volatile mix of Middle East hostilities and US trade policy. While the Sensex and Nifty initially showed resilience on June 1 and 2—supported by a global AI-led rally in IT stocks—the market collapsed on June 3. The Sensex dropped nearly 1,000 points to 73,697, while the Nifty fell to 23,302.50, erasing over Rs 3 lakh crore in market value.

Donald Trump claimed the US and Iran were close to a nuclear agreement and ceasefire, even suggesting a truce by the following week. However, military actions contradicted this diplomacy. The United States Central Command conducted strikes on Iranian sites on Qeshm Island and in Goruk, while Iran launched missile attacks targeting US bases in Bahrain and Kuwait. Although the US military reported intercepting these missiles, the escalation pushed Brent crude prices toward $98 per barrel and weakened the Indian rupee to approximately 95.78 per dollar.

Additional pressure came from the US Trade Representative, who proposed a 12.5 percent import duty on 54 countries, including India, over failures to ban goods made with forced labor. This, combined with record foreign institutional investor outflows totaling over Rs 25,000 crore in early June, triggered a massive sell-off. The IT sector, which had briefly rallied due to strong performance from Snowflake and Nvidia, became the worst performer as investors engaged in heavy profit-booking in firms like Tata Consultancy Services and Infosys.