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On March 3, 2026, Indian stock markets experienced brutal selling pressure as the raging crisis in the Middle East, with the US naval strikes on Iranian ships and the reported death of Supreme Leader Ayatollah Ali Khamenei, sent a wave of severe risk-off trading through the global and domestic equities.

The BSE Sensex fell up to 1,128 points (-1.42) intra-day and closed 1,047 points (-1.32) lower at 78,392. The NSE Nifty 50 dropped by 312 points (-1.25) to mark itself below the pivotal level of 24,700 at 24,682.

Key drivers of the sell-off:

The US attacks on Iran destroyed 9 Iranian naval ships early in the Asian trade, leading to a high price of crude oil, which rose by 18 percent, and more terrifyingly, the Iranians could close the Strait of Hormuz.

The benchmark of Brent crude climbed to above 105/barrel, and this caused concern among Indians since most of its oil requirements are imported (85%).

The world markets became sharply negative: futures in the IIIW market actually fell by 800+, Europeans by 2 and 3, and Asian counterparts (Nikkei and Hang Seng) by 1.5 and 2.8.

FIIs became heavy sellers, selling 4,200+ crores of equities in a single session, the highest amount of single-day outflow in 2026 till now.

The heavyweights in the banking, auto, IT, and FMCG sectors were first, with HDFC Bank, Reliance, Infosys, and TCS falling by 1.5 to 3.5%.

Index-wise, the oil and gas, banking, metals, and automobile segments have dropped by 2-4, whereas the defensive industries such as pharma and IT have performed slightly better.

The reasons given by market gurus were a typical flight-to-safety trade: investors sold risk assets and rushed to gold (which saw its all-time high) and US Treasuries. Domestic analysts cautioned that the current account deficit of India will escalate because of the continued high oil prices over 100 and cause inflation, which will make the RBI reluctant to cut its rates.

Mid-cap and small-cap indices fell 2-3.5%, and the sell-off was wider, involving more players in the market. The index of volatility, India VIX, went beyond 22, indicating increased levels of fear.

Nonetheless, there is optimism that the fall was an overreaction in spite of the carnage: The market is expected to recover swiftly in the event the conflict does not escalate. The true driving factor here is oil, as opined by a fund manager at Mumbai.

With the situation in the Middle East being too unstable, the Indian markets would tend to remain jittery about the crude oil flows and any new geopolitical news that will be used to set the trend in the coming months.