The recent escalation of tensions between Israel and Iran has introduced a fresh layer of uncertainty into global markets, including India. While the Indian stock market initially reacted negatively, it has since shown resilience, prompting questions about whether the market has already factored in the Middle East unrest and whether the Nifty 50 can still reach the 24,000 mark.

Initial Market Reaction and Recovery

Following a robust 10% rally in the Nifty since April 9, 2025, Emkay Global had already anticipated a potential pause in the market. The Israel-Iran conflict has amplified these concerns, posing a short-term threat. The immediate impact was a surge in crude oil prices, which could negatively affect India's current account deficit, fiscal balance, and inflation. The Indian equity indices ended on a negative note on Tuesday, June 17, experiencing moderate losses amid the rising risk of conflict escalation. The Sensex was down 0.26% at 81,583.30, and the Nifty was down 0.37% at 24,853.40.

However, this initial downturn proved to be short-lived. On Monday, June 16, the Indian stock market rebounded, mirroring gains in Asian markets, as concerns over the conflict eased. The Nifty rose 0.9%, and the Sensex climbed 0.8%, recovering from previous losses. This recovery was attributed to a decline in Brent crude prices and expectations of potential US intervention, which boosted market sentiment and reduced volatility.

Factors Contributing to Market Resilience

Several factors have contributed to the Indian stock market's ability to weather the Middle East storm:

• Limited Trade Exposure: India's direct trade with Iran is relatively small, mitigating the direct economic impact of the conflict. While trade with Israel is more significant, the overall effect on India's economy remains manageable unless the conflict escalates dramatically.
• Stable Macroeconomic Fundamentals: India's low inflation and stable macroeconomic situation have provided a buffer against external shocks. In May 2025, India's Wholesale Price Index (WPI) declined to a 14-month low of 0.39%. The Reserve Bank of India (RBI) has projected CPI inflation for FY 2025-26 at 3.7%, providing further comfort to the markets.
• Strong Domestic Flows: Retail investors have been actively buying the dips in the market, supported by steady SIP flows. This domestic liquidity has cushioned the impact of foreign institutional investor (FII) selling, providing stability to the market.
• Focus on Long-Term Fundamentals: Investors have largely maintained their focus on long-term fundamentals, particularly the potential for an earnings rebound supported by aggressive RBI rate cuts and softening commodity prices.

Nifty 50 and the 24,000 Target

Despite the geopolitical headwinds, analysts remain cautiously optimistic about the Nifty 50's potential to reach 24,000. On April 22, 2025, the Nifty reclaimed and closed above the key support level of 24,000. Experts believe that India's strong fundamentals, favorable Q4FY25 expectations, and easing inflation continue to support the bull case.

However, some factors could hinder the Nifty's progress:

• Sustained High Oil Prices: A prolonged period of elevated crude oil prices could negatively impact oil marketing companies, auto manufacturers, and consumer staples.
• Escalation of the Conflict: A significant escalation of the Israel-Iran conflict, particularly if it disrupts global oil supplies, could trigger a more substantial market correction.
• Frothy Valuations: Broader markets are showing signs of froth, with a significant percentage of BSE200 stocks trading above their 5-year average valuations. This could lead to increased volatility and potential corrections.

Sectoral Preferences and Vulnerabilities

Emkay Global favors Discretionary, Technology, and Materials sectors while maintaining an underweight view on Financials and Staples. Sectors vulnerable to sustained high oil prices include oil marketing companies, auto manufacturers, and consumer staples. Additionally, select pharmaceutical API producers and chemical firms may face raw material cost pressures.

Conclusion

While the Israel-Iran conflict has introduced uncertainty into the Indian stock market, several factors have contributed to its resilience. The market's focus on domestic fundamentals, coupled with strong domestic flows and stable macroeconomic conditions, has helped it weather the initial shock.

Whether the Nifty 50 can reach 24,000 remains contingent on several factors, including the trajectory of crude oil prices, the potential for further escalation of the conflict, and the overall health of the global economy. While analysts are cautiously optimistic, investors should remain vigilant and monitor these developments closely.