‘President Trump does not bluff’: Why markets may not yet relax on US-Iran war

The two-day rally on Dalal Street offered much-needed respite to investors, but conflicting signals from the US-Iran war front suggest markets may not relax just yet. This caution was reflected in Gift Nifty, which traded 127 points, or 0.55 per cent lower, at 23,151 today, indicating a negative start for domestic equities on Friday. Most Asian markets including those in Korea, Japan, Hong Kong and mainland China were down up to 3 per cent today, as it was unclear at what level the US-Iran war was progressing. 

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The uncertainty was further compounded by the White House messaging, which pointed to a mix of ongoing negotiations and the threat of escalation. White House press secretary Karoline Leavitt on Wednesday, as per Reuters, said: "President Trump does not bluff and he is prepared to unleash hell. Iran should not miscalculate again," Leavitt told reporters in a press briefing."

Leavitt, however, suggested Washington was still engaged in discussions with Tehran, describing them as productive. Tehran, on the other hand, said it has no intention of holding direct talks with the US. Iranian Foreign Minister Abbas Araqchi said exchanges through mediators should not be considered formal negotiations with the US.

Emkay Global noted that the new Iranian leadership has showed no signs of retreat, and while economic and political pressures will eventually weigh on both sides, it is increasingly of the opinion that Iran will be the key determinant of the conflict’s end.

"It is not yet close to that juncture, even as a prolonged conflict risks internal fractures within Iran," Emkay said.

This brokerage noted that Iran has continued attacking GCC neighbors, striking not just energy infrastructure but also civilian infrastructure, despite the overwhelming military advantage held by the US and Israel. 

SBI Capital Markets in its latest monthly note said there is no clarity as to the objectives of the Iran war, and with no end in sight, the world is preparing for a drawn out conflict. "Indeed, the end may be determined by who can take the most inflationary pain (in a mid-term election year in the US) rather than who has the strongest military," it said.

Trump, Emkay said, faces his own set of constraints, notably the inflationary implications of higher oil prices and weak domestic political support for an extended conflict, especially with midterm elections approaching later this year. 

Emkay said rupee was the worst performing emerging market currency in 2025 and is in 2026 and India's FPI outflows have been higher than Asian peers during the period. It sees rupee touching 96 a dollar level going ahead.

Bernstein in a recent note said a lack of a support back home, heavy US losses, elevated crude and mid-terms in US this year should eventually put an end to the conflict, which is unlikely to last beyond April. 

That said, the damage at some of the oil and gas infra means the issue is no longer incidental to the Strait of Hormuz, it warned. 

It said the recovery time may take anywhere from a few days for facilities shut down as precaution to months where facilities have been damaged. 

It expects several nations to up their buying and shore up petroleum reserves once the situation eases. 

"All this means crude is likely to stay elevated this year, even though it returns below $100 a barrel. We see realistic chances of inflation breaching 6 per cent this summer, rate cuts to get pushed for two quarters at the least, and GDP growth to taper. Taking these into account, we’ve cut the year-end Nifty target to 26,000," it said.

ASK Private Wealth in a note said while the US appears open to a de-escalation pathway, Iran’s posture suggests a prolonged disruption risk, keeping energy markets tight and volatility elevated.