Indian equity markets reeled under fresh geopolitical shocks after Israeli strikes on Iranian military targets rattled global sentiment, wiping out nearly Rs 7 lakh crore in investor wealth on Monday. Benchmark indices opened sharply lower, with the Sensex plunging 802 points and the Nifty dropping 244 points, before closing with losses of 719 and 243 points respectively.

The currency market mirrored the anxiety, with the rupee weakening by 38 paise to 95.32 against the US dollar, amplifying concerns over imported inflation, particularly in energy.

What is worrying policymakers is the convergence of external shocks and domestic pressures. Rising crude prices, a weakening rupee, and sustained inflation risks could deepen the burden on India’s tax-paying middle class. With equities under stress and household financial assets taking a hit, market volatility is now feeding into broader economic sentiment.

Sources in policy circles indicate growing concern that prolonged instability could evolve into a political challenge, especially if inflationary pressures intensify alongside declining investment confidence.