- Oil prices surged after US air strikes killed a top Iranian commander
- Global crude benchmark Brent futures jumped to highest since September 17
- Rupee weakened by 0.26% to 71.55 against US dollar
Other Asian markets also stumbled following news of the air strikes, in which the head of Iran's elite Quds Force and a top Iraqi militia leader were killed early on Friday at Baghdad airport.
Oil prices surged, reflecting concerns that escalating Middle East tensions may disrupt oil supplies.
Brent crude futures jumped to their highest since September 17 and were last up 2.88 per cent at $68.16 a barrel. The rupee weakened by 0.26 per cent to 71.5525 against the dollar.
India, the world's third-biggest oil consumer, imports about 80 per cent of its oil needs, making it highly susceptible to crude price swings.
"Iran will certainly retaliate... Oil is likely to be on boil. Bad for large oil importing countries, especially those with large trade and current account deficit like India," said Ajay Bodke, chief executive of portfolio management services at Prabhudas Lilladher in Mumbai.
"Risk aversion would spike sharply Investors may again find comfort in mega-caps and shun 'risky' small- and mid-cap equities."
Shares in oil refining, retail and telecoms group Reliance Industries, India's largest company by market value, fell 0.7 per cent, on concerns of falling margins due to the rise in oil prices.
State-run oil producer Oil and Natural Gas Corp and gas suppliers GAIL gained roughly 2.4 per cent each.
Asian Paints, a Nifty 50 component, fell 1.4 per cent. Shares in IT services companies, which receive a bulk of their revenue from overseas and benefit from a weaker rupee, gained Infosys and Wipro climbed 1.5 per cent each, while Tata Consultancy Services rose 2.3 per cent.
Meanwhile, the Reserve Bank of India (RBI) on Thursday announced another simultaneous purchase and sale of government bonds, the third such operation in recent weeks, moves seen as an attempt to bring longer-term yields lower.