Is The Worst Over? Expert Decodes US-Iran Deal Impact On Inflation, Rupee

Stock Market Today: An agreement between the US and Iran is beginning to shift sentiment across global markets. While diplomats focus on ceasefire terms and negotiations, investors are watching something else: the possibility that a major geopolitical risk premium could start disappearing.

According to Hemant Sood, Founder and Managing Director of Findoc, markets had spent months pricing in the possibility of a wider conflict in the Middle East. Any signs of de-escalation, he says, can have far-reaching consequences for oil prices, inflation, currencies and equity markets.

"The market impact of a peace agreement goes beyond diplomacy. It changes how investors price risk," Sood said.

Oil prices are the first thing investors are watching. The biggest immediate impact is being felt in the oil market.

The Strait of Hormuz, a critical shipping route, carries a significant share of the world's oil trade. During the recent tensions, concerns about supply disruptions pushed Brent crude above $100 per barrel.

Following reports of the US-Iran agreement, however, Brent crude retreated to around $75-$78 per barrel.

Sood noted that this decline is particularly important for India, which imports nearly 88 per cent of its crude oil requirements. "A sustained fall in oil prices can reduce India's import bill, ease pressure on the current account deficit and help contain inflation," he added.

The drop in crude prices has already helped improve market sentiment. Indian equities rallied for several sessions as investors responded positively to lower energy costs despite US Federal Reserve' keeping the rates steady.

Lower Oil Could Help Tame Inflation

Energy prices have a direct bearing on inflation, especially in an import-dependent economy like India.

Recent data showed consumer inflation moving up to 3.93 per cent in May from 3.48 per cent in April. Food inflation also edged higher. Wholesale inflation, which is more sensitive to fuel and commodity prices, remained elevated.

According to Sood, these figures underline how closely inflation is linked to global energy markets. "If crude remains below $80 and shipping costs normalise, the inflation outlook could improve over the next few quarters," he said.

That, in turn, could give policymakers greater flexibility.

RBI May Get Some Breathing Room

The Reserve Bank of India has maintained a cautious stance amid concerns over global uncertainty and energy prices. Sood believes a durable easing of tensions in the Middle East could reduce some of those concerns.

While that does not automatically translate into immediate rate cuts, it lowers the need for policymakers to remain overly defensive, he said.

A more stable inflation environment could give the central bank additional room to support growth if needed.

Another area that investors are closely monitoring is the rupee. Periods of geopolitical conflict typically lead to higher oil prices, increasing demand for dollars from oil-importing countries such as India. That often puts pressure on the domestic currency.

Sood said lower crude prices could help ease that pressure by reducing oil-related dollar demand. However, he cautioned that the rupee's trajectory will continue to depend on several factors, including US interest rates, RBI intervention and foreign capital flows.

Foreign Investors May Return

Foreign portfolio investment remains a key driver of market sentiment. India posted a current account surplus of $4.7 billion in April,  supported by strong services exports and remittances. However, foreign portfolio investors withdrew $8.7 billion during the same period, resulting in pressure on the overall balance of payments.

Sood said this highlights an important reality for markets. "Strong economic fundamentals help, but investor confidence also matters. Capital flows can significantly influence market performance," he said.

Following the easing of geopolitical concerns and the correction in crude prices, foreign investors turned net buyers after an extended selling streak.

According to Sood, sectors such as financials, automobiles, infrastructure, logistics, manufacturing and consumer-focused businesses could benefit if foreign inflows strengthen further.

Companies Could See Margin Improvement

Lower oil prices are also good news for several industries. Aviation, logistics, chemicals, paints, tyres and cement companies are among the sectors that typically benefit when fuel and transportation costs decline.

Sood said companies with strong domestic demand and pricing power are often the biggest beneficiaries during such periods. Reduced input costs can improve profitability even if overall demand growth remains moderate.

According to Rajat Bokolia, CEO, Newstone, opening of the Strait of Hormuz send a positive signal to India's real estate market as well. "Lower uncertainty around input and logistics costs can help developers plan projects more efficiently, while stronger economic sentiment can improve buyer and investor confidence. Over time, this could lead to increased investments across residential, commercial, and mixed-use developments."

Despite the optimism, Sood cautioned against assuming that geopolitical risks have disappeared. The reopening of shipping routes and normalisation of trade conditions will take time. Key issues, including Iran's nuclear programme, still require negotiations.

Other global flashpoints also remain on investors' radar, including the Russia-Ukraine conflict, Red Sea security concerns and tensions involving China and Taiwan.

For now, however, Sood believes the direction of travel is encouraging. "A durable peace dividend can support lower oil prices, softer inflation, a more stable rupee, stronger corporate earnings and improved investor sentiment," he said.

The broader lesson for investors, according to Sood, is that geopolitics has become a permanent factor in market analysis. "War creates risk premiums. Peace removes them. Understanding both sides of that cycle helps investors protect capital and identify opportunities earlier," he added.