Several Indian market sectors that witnessed significant declines during the recent Iran-Israel conflict could be positioned for a recovery as geopolitical risks ease and crude oil prices retreat from their highs.

The conflict had weighed heavily on investor sentiment, particularly in sectors sensitive to energy costs, inflation, and interest rates. Since the onset of the conflict, the Nifty Oil & Gas index declined 8 percent, while Nifty Metal fell 7.9 percent. Nifty Bank dropped 6.5 percent, followed by Nifty FMCG at 5.7 percent. Nifty Infrastructure and Nifty Auto declined 3.5 percent and 3.4 percent, respectively, while Nifty Realty slipped 2 percent.

Market experts noted that rising crude oil and natural gas prices heightened concerns around India's current account deficit, inflation trajectory, and fiscal balances, leading foreign investors to reduce exposure to risk-sensitive sectors. Defensive sectors such as pharmaceuticals attracted investor interest, while refining companies benefited from stronger refining margins and defence-related stocks gained support from export expectations.

The impact varied across industries. Banking, automobile, real estate, and consumer-oriented companies faced selling pressure as markets anticipated the possibility of persistent inflation and tighter monetary conditions. Within the energy sector, oil marketing companies and gas transmission firms came under pressure due to concerns over margin compression, while upstream oil and gas producers benefited from elevated commodity prices.

Higher crude prices also increased concerns regarding input costs for companies dependent on petroleum-based raw materials and packaging products. In addition, supply chain disruptions affecting chemicals and other industrial inputs from the Middle East weighed on sentiment across select manufacturing segments.

Investor sentiment was further impacted by forecasts of below-normal monsoon rainfall and a higher probability of El Niño conditions. However, rating agency assessments indicate that stronger reservoir levels, sufficient foodgrain inventories, and government preparedness measures may help mitigate broader economic risks compared with previous El Niño periods.

With crude prices moderating and geopolitical tensions showing signs of easing, investors are reassessing sectors that could benefit from lower inflation and reduced borrowing costs. Analysts believe automobiles and real estate may emerge as key beneficiaries if energy prices remain contained. The metals sector could also gain support as concerns over a global economic slowdown diminish and demand expectations improve.

Market participants will closely monitor whether these sectors can sustain a recovery as risk appetite returns and macroeconomic uncertainties continue to ease.