Calm in West Asia may augur well for equity markets, but experts still advise caution. Here’s why

Equity markets in India have had a volatile year, with the benchmark BSE Sensex and NSE Nifty50 declining 7-8 per cent so far in 2026, as the war in West Asia drove up oil prices and raised concerns on the impact on Indian economy.

However, with signs of peace emerging between USA and Iran, and crude oil prices pulling back sharply, investors are turning cautiously optimistic, with some buying also emerging among foreign institutional investors, who have been heavily selling in the domestic market. However, market experts still advise caution don’t think its prudent to go all in on equities right now, with markets likely to remain volatile.

“Ceasefire signals are certainly positive, but markets don't rally on signals alone. When Brent crude crossed $126 per barrel earlier, markets weren't just pricing higher oil - they were pricing geopolitical anxiety into every import-dependent economy. As oil prices cool, that geopolitical risk premium is gradually fading from market valuations, but it doesn't disappear overnight,” Sidharth Sogani Jain, founder, CEO and fund manager at Blue Aster Capital and CREBACO Global, tells Business Today.

Lower crude oil prices will improve India’s current account balance, reduce pressure on the rupee, and give RBI greater flexibility on monetary policy. But, he feels market sentiment will only improve gradually.

“The next couple of quarters may see cautious optimism, but a sustained bull market will require policy stability and durable geopolitical calm - not just a temporary pause in hostilities,” he stressed.

Arpit Jain, the joint MD of Arihant Capital Markets agrees that crude oil prices dropping below $70 per barrel will be supportive for India, but investors must continue to monitor commodity prices and the rupee.

“While easing tensions improves sentiment, volatility may persist, particularly in commodities,” Jain stressed.

FIIs to return?

Foreign portfolio investors (FPIs) have been heavily selling in Indian markets over the past 12-18 months amid the geopolitical tensions and the potential impact on India’s economy, the pressure on rupee and AI-related investment opportunities in many markets, which India lacked.

So far in 2026 up to July 3, FPIs have sold $29.21 billion (Rs 2.73 lakh crore) from India’s equity market, significantly more than the $18.90 billion they offloaded through the entire 2025 calendar year.

But, there are initial signs that FIIs may be cautiously beginning to relook at India, even if it may be selectively, with some buying signs emerging in the later part of June. In the first three days of July, they have been net buyers to the tune of $73 million, compared with the $5.15 billion they offloaded in June.

Analysts point out that in the first half of the year, amid the conflict, as crude oil prices surged and the rupee weakened sharply, the dollar adjusted returns looked less compelling. The potential economic impact on India also weighed on investor sentiments. But, with the rupee regaining some ground and crude oil easing, India’s economic variables are improving.

“From discussions with institutional investors, the narrative has shifted from ‘why India’ to ‘when should we increase exposure, and at what valuations.’ That is an important change. India is clearly back on the global investment radar - the debate is now about timing rather than direction,” said Sogani Jain.

Selective Optimism

Even as the near-term economic and geopolitical outlook may be improving, it may not be the time to go all in on equities, experts say, advising investors to remain selective.

“The current market environment calls for a staggered investment approach rather than deploying capital all at once. Given global uncertainties and valuation concerns in certain pockets of the market, investors should continue building their portfolios gradually rather than taking concentrated positions,” said Jain of Arihant Capital.

IT Stocks – Value or not?

One sector that has seen a deep correction in the last few months is IT. Companies like Tata Consultancy Services, Infosys, Persistent, Wipro and Zensar slumped between 25-35 per cent year-to-date amid worries that AI will lead to a massive disruption in their business.

Jain believes that the sector has gradually become a value play after this correction and investors could build long-term positions but not expect immediate returns. Blue Astor’s Sogani Jain, however, doesn’t see it as a straightforward value opportunity.

While, the stocks are trading well below their historical valuation multiples, he also pointed that earnings growth had slowed materially, compared with their historical averages.

“Artificial intelligence could fundamentally reshape software services, pricing models, and industry profitability. If that happens, historical valuation benchmarks may no longer be the right reference point,” stressed Sogani Jain.

Banking Opportunities

Banking, on the other hand, presents a “clear investment case,” he feels. 

“Foreign institutional selling has created valuation opportunities in several high-quality private banks whose asset quality, capital adequacy and profitability remain strong. That's where I currently see more compelling value,” he noted.

Jain of Arihant also said the banking sector remained fundamentally strong and should benefit as the overall market sentiment improves.