If Gold Is Falling Despite a War, What Does That Tell Us About the Stock Market?

Introduction

Gold is supposed to go up when the world is in crisis. That is the oldest rule in investing.

And yet, here we are — the US and Iran are at war, the Strait of Hormuz has been disrupted, crude oil is hovering close to $105 a barrel.

Yet, the gold has corrected nearly 8% from its early March peak. That is not what the textbook says should happen in an emergency.

When an asset as reliable as gold starts behaving unexpectedly, for me, it is not just a gold story.

It is a signal about the broader market.

It is the market telling you something important — about where money is going, what investors are worried about, and which direction the next large move in equities might come from.

That is exactly what I want to discuss with you in this article.

I think the gold story is the starting point. But the real focus here is what it means for your equity portfolio.

We must understand:

• Which sectors are getting hurt?
• Which ones are holding up, and
• How an we retail investor should be thinking about keeping our portfolio protected and growing?

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1. Why Gold Is Not Rising

Before we get to equities, let me quickly summarise why gold is falling despite the war, because understanding this is the foundation of everything else that we’ll discuss in this post.

The US-Iran conflict began on February 28, 2026, with US and Israeli strikes on Iranian targets.

The immediate market reaction was predictable.

• Crude oil surged,
• Equities fell globally, and
• Gold initially moved higher.

But after that initial spike, gold has been drifting lower.

From around Rs 1.70 to 1.71 lakh per 10 grams in early March, it has corrected to around Rs 1.60 to 1.62 lakh per 10 grams as of this writing.

The reason is that the war triggered a rise in oil prices, and higher oil prices have revived fears about inflation staying elevated. That, in turn, has pushed back expectations for US Federal Reserve rate cuts in 2026.

And when rate cut expectations get pushed back, the US Dollar strengthens, which directly puts pressure on gold price, and it falls.

In simple terms, the war created an inflation problem, which killed the rate cut story.

With the rate cut story dying, the Dollar strengthened, and a strong Dollar always hurts the gold price in short term. That is the chain we must keep in mind.

Now, that same chain has very direct and significant implications for our stock markets.

2. What the Same Chain Is Doing to Indian Equities

2.1 The Nifty Has Taken a Real Hit

Let me start with the headline numbers.

The Nifty has fallen close to 8% in March alone.

This is the second sharpest monthly fall in a decade, after March 2020 when the pandemic hit. Over 400 stocks have shed double digits since the conflict began.

Foreign investors have pulled out over Rs 50,000 crore in this period.

That is not a small correction. That is a meaningful fall, and it is happening for reasons that are directly connected to the same forces that are suppressing the gold price globally.

Global stock markets have also declined sharply since the conflict began.

• The Dow Jones fell over 400 points and
• The S&P 500 dropping 0.7% in a single day.
• European and Asian indexes fell 1 to 2%,

These are all reflections of the fear of inflation and supply chain disruptions.

So this is not just an Indian problem. But India is feeling it more acutely than other countries due to our high energy dependency (oil and gas).

2.2 India’s Specific Vulnerability: The Oil Problem

India imports roughly 85 to 90% of its crude oil requirements.

That is a number every Indian investor needs to keep in mind at all times.

India now has only 25 to 50 days of crude oil supply. A significant portion of those imports transits through the Strait of Hormuz. The Hormuz Strait is about a 33-kilometre-wide channel between Iran and Oman that handles roughly 20% of global oil and LNG flows worldwide.

When that channel gets disrupted, India is among the first and most severely affected economies in the world.

China is also as affected as India, but China’s vessels are passing through the Hormuz till now. So till now they are comparatively safe.

Brent crude, which was trading around $70 a barrel before the strikes, surged to around $80 by March 2. Within days, it is pushing toward $105.

What does this mean in practical terms for India?

Higher oil prices widen our Current Account Deficit (CAD). When we spend far more on oil imports without a corresponding rise in exports, our CAD rises fast.

This puts pressure on our Indian rupee.

The Indian rupee is down about 1.5% since the war began. Today it has hit a record low of 92.47 versus the US dollar.

A weaker rupee makes our oil import bill even more expensive in rupee terms, which adds to inflation domestically.

This is a huge trap India finds itself in.

This is what is now directly shaping some sectors of our stock market. Some sectors are suffering, and some are holding up well (comparatively).

3. Sector-by-Sector: What Is Getting Hit and What Is Not

3.1 Banking and Financial Stocks

Rate-sensitive sectors such as banking, financial services, and automobiles have faced significant pressure in recent weeks.

As the foreign institutional investors are reducing their exposure to these stocks, the price correction is more severe here.

The S&P BSE BANKEX has been down over 11% in the last 30 days.

The Bank Nifty has also broken key technical support levels and is sitting near a six-month low.

Why are banking stocks under so much pressure? There are two main reasons:

• First, FIIs tend to sell banking stocks first when they reduce their India exposure. This is because financial stocks are highly liquid and easy to exit quickly.
• Second, the interest rate environment has turned uncertain. One of the key reasons the banking sector was expected to do well in 2026 was the expectation that the RBI would cut interest rates further. This would have boosted the loan demand, thereby improving net interest margins over time. The RBI had already cut the repo rate to 5.25% in December 2025. But now, with oil driving inflation higher, the space for further rate cuts has narrowed considerably. This removes a key tailwind for banks.

That said, I want to be clear here that I do not have any doubt on the long-term structural story for top Indian banks like ICICI Bank, HDFC Bank, SBI, Axis Bank, PNB, etc.

Bank stocks are falling, but the banks (business) are not suffering because of any internal weakness. They are suffering because of external macro pressures.

That distinction matters when you are thinking about what to do with your portfolio.

3.2 Aviation, Paints, Chemicals, and Logistics

These are the sectors where the pain is most direct and most visible.

When crude oil goes from $70 to close to $100 in a matter of weeks, every business that uses fuel or petrochemicals as a major input gets hit hard in its margins.

Aviation is the most obvious example.

• IndiGo stock fell 9.15% in a single trading session.
• Airlines have very little ability to pass on sudden fuel cost increases to customers in the short term. We must also understand that this oil inflation has come when bookings are already being disrupted by Middle East airspace closures.

Sectors that are heavily dependent on fuel are the following:

1. Aviation,
2. Logistics,
3. Paints, and
4. Chemicals

These four sectors face margin compression as input costs rise sharply.

Companies like Asian Paints, which use crude derivatives as raw materials, face higher input costs without an immediate ability to raise prices.

The same story is for tyre companies as well.

Adhesive manufacturers and specialty chemical producers are also in the same boat as Airlines and Paint companies.

For investors holding stocks in these sectors, this is a period of real earnings risk. The next set of quarterly results could show meaningful margin pressure if oil price stays elevated.

3.3 Automobile Stocks

Within the automobile segment, I think all three major automobile manufacturers will be affected due to this surge in oil prices:

• Maruti Suzuki,
• Mahindra and Mahindra, and
• Tata Motors.

The auto sector faces a two-sided problem.

• On the cost side, rising fuel prices mean vehicles cost more to run, which can dampen the demand. This is more true for the entry-level cars and two-wheelers, where the buyer is more price-sensitive.
• On the supply side, components and raw materials linked to petroleum are becoming more expensive. If these companies do not pass on the price hike, their margins will fall.

3.4 IT and Pharma

Here is where the story gets a bit complicated, and to understand it, our gold analogy becomes most useful.

Just as gold loses out to the US Dollar during a Dollar-strengthening phase, Indian IT companies actually stand to benefit from the same Dollar strength.

A weaker rupee can support IT exporters. Earnings visibility in this sector can make it relatively defensive when broader equities are falling. The logic is straightforward. Our IT companies earn a large chunk of their revenues in US Dollars and report in rupees. When the rupee weakens, say from Rs 84 to Rs 92 per Dollar, those Dollar revenues translate into more rupees at the end of the quarter.

Companies to watch include TCS, Infosys, HCL Technologies, and Wipro.

But we must also keep in mind that if the war gets prolonged and leads to a broader global slowdown, even IT companies will suffer.

But in the near term, IT is one of the better-positioned sectors.

The Pharma sector is also similarly placed.

Pharma typically has steadier demand and is less directly tied to crude. A weaker rupee can also help export realisations for pharma exporters like Sun Pharma, Dr. Reddy’s, and Cipla.

As these companies sell to the US and European markets and earn in foreign currencies, a stronger dollar will strengthen their financial reports.

3.5 Defence Stocks

Every geopolitical crisis brings defence stocks into focus.

Companies like Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL) are sitting on massive order backlogs.

• HAL at approximately Rs 1.89 lakh crore and
• BEL at Rs 75,000 crore.

The government’s focus on domestic defence manufacturing is a multi-year structural theme.

The government announced an emergency Rs 80,000 crore defence procurement package on March 4, 2026. It is a clear signal of intent.

Defence stocks have seen positive sentiment on the back of this.

However, I want to add a word of caution here. Defence stocks in India have already re-rated significantly over the last two years. Valuations are not cheap.

4. What the Market Is Really Saying?

Now, let me come back to the gold analogy.

Gold’s failure to rally meaningfully during a war tells us that monetary policy is currently the dominant force in global markets. In an inflationary environment, it becomes a more dominant factor than even geopolitics.

It is not that Investors are ignoring the war; they are simply calculating that the war’s biggest effect is on inflation:

• Inflation affects interest rates, and
• Interest rates affect asset prices (gold).

The same logic applies to equities (stocks).

What is happening in the Indian market?

• FIIs are reducing risk as they see higher oil, higher inflation, a weaker rupee, and delayed rate cuts. This was not the case at the start of 2026.
• So, they are recalibrating their Indian strategy. They are repricing earnings expectations, currency risks, etc.

What is helping India in such tough times?

• Domestic demand,
• Services growth,
• Consistent Policy, and
• The ability to diversify oil sourcing

But it is true that as India imports about 85% of its crude oil demand, it is very vulnerable to what is happening now in the Middle East.

5. What History Says About Market Recoveries After Geopolitical Shocks

An analysis of six major geopolitical events between 1990 and 2026 shows that markets often react in a similar pattern.

On average, these events lasted around four weeks and were accompanied by temporary corrections.

After the correction phase, the Sensex delivered average returns of around 28% over three months and around 38% over six months.

That is not a guarantee of what will happen this time. Every crisis is different. But it is a reminder that the market’s initial reaction to geopolitical shocks tends to be an overreaction.

Once clarity emerges, recoveries can be sharp.

Such phases of market weakness provide favourable entry points.

Investors can consider deploying capital based on their risk appetite, either through a one-time investment or through the SIP path.

6. What Should You Actually Do With Your Portfolio Right Now?

If you are holding quality stocks in sectors with strong fundamentals, do not panic-sell.

Corrections driven by external macro factors are typically temporary.

• For banking stocks: This sector is under pressure today, but the underlying fundamentals are the best they have been in a decade. Strong capital ratios, historically low NPAs, and a well-regulated system. It means the banking sector is structurally more shock-resistant than it has been in many years. If you believe in the India growth story over a long-term horizon, quality private sector banks at current valuations deserve attention.
• For aviation, paints, and fuel-intensive sectors: This is a period for caution. Margin pressure in the next one or two quarters is a real risk. I’ll not add aggressively to these names until there is more clarity on oil prices.
• For IT and pharma exporters: The current macro environment is relatively favourable for them. Dollar strength and a weaker rupee are, in a way, good for them on a near-term basis.
• For defence: The long-term story remains intact, but valuations are very high in this sector. I’ll only enter when there are very sharp corrections.

Conclusion

Gold is not rising despite a war because the market has decided that monetary policy matters more than missiles right now.

That same message is reverberating through every sector of the Indian stock market.

• The sectors that benefit from Dollar strength and are insulated from crude, like IT, pharma, etc are doing relatively better.
• The sectors that are fuel-sensitive, or that depend on imported raw materials, or that attract FII flows, are under real pressure.
• The overall market as well is in a phase of uncertainty.

Disclaimer: This content is for educational purposes only. Do not take it as investment advice.

Top Stocks in My Watchlist in the Backdrop of Falling Gold and Rising Oil Prices

SL	Stock	Sector	Price (INR)	1M Price trend	Market Cap (INR)	My Remarks
1	Infosys	IT large	~1,270	-10%	~5.3 L Cr.	Core Dollar-earning machine. 67% revenue in USD/GBP/EUR. A weaker rupee directly lifts reported earnings.
2	HCL Technologies	IT large	~1,300	-11%	~3.5 L Cr.	Most analysts project HCL to lead peers in revenue growth – driven by its software products business and BFSI/hi-tech traction. It has the least exposure to US Federal spending cuts among large-cap IT. Strong dividend yield adds cushion. Dip looks like a buying window.
3	Persistent Systems	IT midcap	~4,650	-17%	~73,500	Revenue grew 23% YoY in Q3 FY26 is one of the fastest in the entire IT sector. Net profit up 18% YoY. Revenue CAGR of 26.7% over 5 years is exceptional. On track for $2B by FY27. The sharp 1M fall looks like sentiment-driven, not fundamental.
4	Coforge	IT midcap	~1,085	-30%	~36,600 cr	Order intake jumped 56% YoY to $1.9B. Revenue up 40% YoY in the latest quarter. 55% revenue from Americas, strong BFSI vertical. The 30% fall over 1 month is steep and looks overdone versus fundamentals.
5	Sun Pharma	Pharma	~1,770	~5%	~4.3 L cr	India’s largest pharma company. 67% revenue from exports — highest among peers — making it a natural rupee-depreciation beneficiary. Mutual funds are overweight on pharma as a sector (7.3% of portfolios in Feb 2026). Relatively resilient in the current macro.
6	Dr. Reddy’s	Pharma	~1,230	-7%	~1.03 L cr	52-week low near Rs. 1,020 — the stock has strong support not far below. PE of ~18x is the cheapest in large-cap pharma. Broad generics portfolio across US, Europe, and India reduces single-market risk.
7	HDFC Bank	Banking	~783	-8%	~12.5 L cr	Trading near its 52-week low of Rs. 770 (just 2% above it). PE of ~16x is the lowest it has been in years. Net profit grew 12% YoY in Q3 FY26. Ind-Ra reaffirmed AAA/Stable rating in March 2026. The chairman’s resignation created short-term noise, but Keki Mistry as interim chairman, provides continuity. India’s largest private bank at near-multi-year-low valuations is not a common opportunity.
8	Bharat Electronics (BEL)	Defence	~436	-2%	~3.2 L cr	Net profit up 20% YoY in Q3 FY26 with 22% QoQ jump — a business genuinely accelerating. Received Rs 1,011 crore in additional orders on March 17 alone. Order book at ~Rs 75,000 cr. Almost debt-free. Revenue growing 20%+ per quarter. Unlike HAL, BEL has shown far less volatility in the current correction, suggesting the market trusts the earnings quality here. I think it is one of the most fundamentally sound PSU stocks right now, but it is expensive.
9	HAL	Defence	~3,878	-2%	~2.65 L cr	Order backlog of ~Rs 1.89 lakh crore — almost 5 years of revenue visibility. Q3 FY26 profit up 30% YoY. Emergency Rs 80,000 cr defence package announced March 4 directly benefits HAL. PE of 30x is reasonable for a strategic monopoly. It is not cheap, but the structural moat is real, and the government is the anchor client.
10	Cipla	Pharma mid	~1,260	-13%	~1.02 L cr	Fastest-growing generic player in North America. It is a key market in a Dollar-strong environment. Profit CAGR of 28.7% over 5 years. Almost debt-free. PE of ~23x is below industry average of 27.7x, so valuations are relatively fair. The 13% 1M fall is the sharpest among pharma peers and looks excessive — Cipla’s revenue mix (49% domestic, 51% exports) gives it balance that pure exporters lack. I think it is a good midcap entry point for a long-term pharma holder.

Disclaimer: The above list is not investment advice. Published only for knowledge sharing purpose.