Moneycontrol Pro Panorama | War-time brinkmanship fires up the shorts

Iran wants an end to the war but with guarantees of no future attacks.

Dear Reader,

A wounded tiger is a dangerous adversary in the jungle -- hungry, desperate, in pain and unpredictable. But, when there are two wounded tigers, the havoc levels can multiply. That risk is what markets are reacting to, with US and Iran both issuing dire threats in a bid to claim the upper hand in the ongoing West Asia war. The Nifty was trading at 22560 at 12.30 pm, down 2.4% from Friday’s close and at a level that was last seen in early-March 2025.

The weekend brought difficult-to-digest news. The world view of Iran’s missile capability changed after it fired two missiles at Diego Garcia, which houses a UK military base that PM Keir Starmer allowed to be used to conduct strikes on Iran. What surprised everyone was that Iran could attempt to fire missiles at a distance of 4,000 km -- neither reached the island -- when its known missile range capability was 2000 km. That potentially gives it the ability to reach Europe too, unlocking a new fear. Though in the fog of disinformation seen in this war, it's difficult to know the true picture about this reported attempt. The weekend also saw nuclear facilities or locations near them in Iran and Israel being targeted.

But what really upped the fear quotient was US President Donald Trump giving a 48-hour ultimatum to Iran to reopen the Strait of Hormuz or suffer attacks on its power plants. This will be a new escalation as attacks so far have focused on military installations and oil and gas infrastructure. If Iran was expected to blink, it stayed true to form and promised retaliatory attacks on power plants in the Gulf and power supplies to US bases.

That Iran has carried out its threats in the past lends credence to its claims. Its ability to successfully hit ships in the Strait and targets in the Gulf despite air defences makes it an explosive situation. The US wants Iran to agree to a ceasefire and open up the Strait for transit. Iran wants an end to the war instead with guarantees of no future attacks. The off-ramps have been kept ready, but who will climb down first is the question.

Monday’s fall in markets is capital taking yet another, longer flight to safety as the situation promises to turn uglier. Gold’s sheen as a safe haven asset has dulled considerably, although why exactly is not clear. Prices were down by 8 percent over Friday, and are down by a fifth over a month ago.

One strong reason could be the dollar reclaiming its safe haven status. The dollar index is up by 0.2 percent today and by 2 percent over a month ago. The US 10-year bond yields have risen to 4.4 percent, up by 0.7 percent and 9.4 percent over a month ago. If the conflict grinds on, then the effect on inflation will be significant, longer-lasting, forcing the US Fed to hike interest rates. That makes the dollar a safe bet.

It's a double squeeze for equities, however. Rising bond yields mean higher interest costs and lower valuations of technology stocks. It affects the real economy, too. For Indian companies, a continuing conflict means worsening disruption of energy and downstream supplies, leading to higher costs and production bottlenecks. Demand compression may follow, as inflation and higher rates crimp budgets. Profits will feel the pinch as sales will slow, costs will increase and interest costs will mount.

These fears are not new, but are getting more legs as the weeks pass and the conflict shows no signs of ebbing.

That this too shall eventually pass is not disputed, but it could take longer than expected, and the recovery from it may not be as complete or as swift as investors may have hoped.

Investing insights from our research team

Radico Khaitan: Growth continues with further margin expansion

Exide Industries: Core business recovery, lithium push to drive next leg of growth

CAMS – Balancing dominance with diversification

What else are we reading?

Governance lessons from l’affaire HDFC Bank

War’s collateral damage: a world struggling to feed itself

Chart of the Day: Tractor sales to slow down in FY27 after a blowout FY26

Cheaper weight loss drugs pose risk for F&B industry

India: No country for graduates

The Eastern Window: What China is learning from the Middle-East war

The Iran war and the Helium supply scare

Ruchir Sharma: America keeps bailing out Trump (republished from the FT)

Vault Matters: There are times when dissent and discord in India Inc are good

Fragmented gig worker policies may slow India’s growing digital platform economy

CAPF Bill 2026: Reaffirming the Institutional Necessity of IPS Leadership

From security dependence to self-reliance: The opportunity few are pricing in

Indian AI founders scaling globally through US market access

Markets

SC dismisses Avadhut Sathe Trading Academy plea but allows Rs 2.25-crore withdrawal for expenses

Tech and Startups

No army of engineers needed: Snowflake targets AI complexity with managed platform

Technical Picks: HCLTECH, CIPLA, COALINDIA, ICICIBANK

We have a crack team of reporters writing on everything startups and tech. We are fans of their newsletter Tech3 that lands in our inboxes every weekday evening. You can catch up on the day's happening tech and startup stories, including news, scoops, and analyses. If you have not already subscribed to it, click on this link to sign up.

Ravi Ananthanarayanan Moneycontrol Pro