
Hopes of an end to the Iran-Israel conflict, a sharp drop in crude oil prices, a likely recovery in the rupee (after hitting five-month lows), hopes of an above-normal monsoon (and further RBI rate cuts), and foreign inflows (risk-on EM trade) likely left domestic stock benchmarks Sensex and Nifty in a sweet spot today.
"The dramatic developments in West Asia culminating in President Trump’s announcement of ceasefire indicate that the worst of the conflict is over. The sharp reactions in the crude oil and stock markets suggest the geopolitical situation limping back to normalcy. Nifty which has been stuck in the 24,500-25,000 range will now decisively break out on the upside," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
Iran-Israel ceasefire
The US President Donald Trump announced on Truth Social that Israel and Iran had agreed to a temporary ceasefire. “It was fully agreed by and between Israel and Iran that there will be a complete and total ceasefire for 12 hours, at which point the war will be considered ended,” Trump stated.
According to Trump, Iran would begin the ceasefire, followed by Israel 12 hours later. After 24 hours, he said, the 12-day conflict would be officially declared over. “During each ceasefire, the other side will remain peaceful and respectful,” he added.
However, Iran denied reaching any formal agreement. In a post on X, Iranian Foreign Minister Seyed Abbas Araghchi said, “As of now, there is no ‘agreement’ on any ceasefire or cessation of military operations. However, provided that the Israeli regime stops its illegal aggression against the Iranian people no later than 4 a.m. Tehran time, we have no intention to continue our response afterward.”
Araghchi added that a final decision on halting military operations would be taken later.
Crude oil prices
Crude oil prices tumbled on Tuesday to levels last seen before the Iran-Israel conflict, as hopes of a ceasefire between the two nations gained momentum. Both Brent and WTI futures for September delivery declined by 3 per cent. Brent crude for September delivery fell by $2.65 to settle at $68.65 a barrel. This followed an 8.53 per cent plunge in the previous session, bringing the total drop from Monday’s high of $79.40 to 15 per cent. Prices have now slipped below the June 13 closing level—the day the conflict began. Brent had closed at $69.36 on June 12 and touched a low of $67.42 on Tuesday.
Rupee movement
Rupee has been weakening against the US dollar amid geopolitical tensions, and crude oil moves. The recent airstrikes by the US on three nuclear-related sites in Iran and the latter threatening to block Strait of Hormuz had all weighed on the local currency. But with the Iran-Israel ceasefire announced, and the dollar index easing a bit, there are hopes rupee weakness could reverse its weakness, triggering further foreign equity inflows.
The local currency opened 64 paise stronger against the greenback today, quoting at Rs 86.11 compared with its previous closing rate of Rs 86.75 per dollar.
FPI inflows
Despite geopolitical concerns, FPIs are net buyers to the tune of Rs 5,280 crore in June so far. "FIIs turning out buyers of local shares worth over Rs 10,000 crore in the past 4 sessions shows that India's strong fundamentals continue to attract foreigners despite global uncertainty,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.
Monsoon, policy easing
The minutes from RBI's recent policy suggested there was unanimous optimism from the MPC on the inflation trajectory, with the RBI revising its FY26 CPI forecast to 3.7 per cent, from 4 per cent earlier. Nearly all members cited the likelihood of above-normal monsoons, contained core inflation amid moderating commodity prices, and well-anchored inflation expectations as the reasons behind this optimism which opened the space for the monetary policy to act, EMkay Global noted.
"Interestingly, per Professor Singh, the real rate is too high with this revised CPI forecast – at 6 per cent repo rate, it would work out to be 2.3 per cent. With estimates putting India’s post-Covid real neutral rate (r*) at 1.65 per cent, it would imply scope for 75bps of easing in the current cycle. He also stated that given the lower trajectory of core inflation recently, there is no indication of demand-pull inflation, and a 50bps rate cut should not cause any overheating," Emkay Global said.
Meanwhile, Vijayakumar said whether the indices will sustain at higher levels will depend on developments on the trade front. Since the pause on the reciprocal tariff ends on July 9th, bilateral trade agreements have to happen before that. Therefore, markets are likely to respond to developments on the trade front, he said.