Nifty Rises 9% In November As Oil Falls, But Is The Euphoria Premature?

Domestic indices rose to multi-month highs as Brent crude futures prices tumbled following a political shift in the US. However, analysts warn that persistent supply bottlenecks and premature peace optimism will likely trigger sharp market volatility.

In the last two days, the Nifty 50 index has risen more than 4%. Most of the exuberance was driven by a sharp drop in prices of crude oil on Thursday, which fell sharply after the Democratic Party swept the US mid-term elections, raising hopes that the Congress will likely rein in military operations and pressure President Donald Trump into reaching a swift settlement with Iran.

On Thursday, Brent Crude oil futures marked for delivery in January fell almost 9%, before rebounding to more than $98 per barrel on the Intercontinental Exchange on Friday.

So far in November, the Nifty 50 has risen around 9%, helped by falling oil prices and the unwinding of artificial intelligence trade abroad.

Oil Poses Key Risk

Reports that the US has approved a draft understanding, passed to Iran through Qatari mediators, have also pulled crude oil prices lower in November. The Brent Crude January futures contract has declined 20% in five days after reaching a high of $118 per barrel on October 30.

Lower crude oil prices are good news for India, as they reduce the import bill, the current account deficit, and inflation pressure.

High energy prices have been a key overhang for markets across the world, even more so for net oil importing countries such as India. Expensive crude oil imports have increased inflation and added downward pressure on the rupee.

Thursday’s rally notwithstanding, analysts warned that oil prices may whipsaw as investors have priced in an end to the Iran war too aggressively. Peace between the warring parties has looked to be within striking distance several times over the year, but has not materialised and that has kept investors on edge and energy markets volatile.

“The market is pricing a deal that has not happened yet,” PL Capital Commodity Research said in a report, adding that Brent Crude oil prices will remain volatile, with sentiment running ahead of fundamentals. A credible deal will likely take Brent Crude prices towards $80–$85 per barrel, the brokerage said.

Most of the de-escalatory comments have come from US officials, which many political analysts said were made to soothe US voters, who have been facing high fuel prices due to the war. Tehran, on the other hand, has not indicated softening its stance yet. The new US Congress only takes office in January. Coupled with reports of the US and Israel planning strikes on Iran, this could lead to a sharp rise in oil prices in the near term once again.

The downside risk to equity markets in case the war in West Asia flares up is a real threat, said Divam Sharma, Chief Executive Officer of Green Portfolio. The portfolio management firm expects Brent Crude oil to hover between $85 and $95 per barrel in FY27—$75 to $85 if a credible deal holds, and $110 to $120 if conflict resumes.

High crude oil prices will also lead to higher prices in India and push the central bank to raise benchmark lending rates further, analysts said. Broadening inflationary pressures, driven by higher food prices and adverse base effects, alongside elevated wholesale prices and currency depreciation will likely take the terminal policy rate to 6.25% by April, up from 5.50% currently, Morgan Stanley said in a report.

Energy Prices Still Grim

Uncertainty about when the West Asia war will come to an end is not the only concern driving oil prices higher. The already damaged infrastructure—which limits supply—and persistently high demand will likely keep oil prices higher for longer. “A deal will not quickly fix damaged refining capacity and depleted inventories, and the rebuilding of stocks will itself keep demand firm,” said Sharma.

Echoing his view, Rajeev Sharan, Head of Research at Brickwork Ratings, said, “Financial traders are moving ahead of reality. While paper prices are falling, physical barrels in the Middle East remain above $100 because shipping routes are still disrupted.”

In the coming weeks, oil prices should find a firm floor near $90 per barrel as physical bottlenecks persist. By early 2027, if shipping lanes fully reopen, Gulf producers will likely boost supply to reclaim market share, pushing Brent Crude towards $75 per barrel, Sharan said.

Several analysts and fund managers said they would rather review their positions and shift funds around after solid diplomatic developments, rather than by chasing headlines.

“This week’s sharp rally in those stocks after Brent (Crude oil) fell 20% in five sessions is exactly the kind of headline-driven move we try to avoid,” said Sonam Srivastava, Chief Executive Officer of Wright Research. The firm will likely stick to analysing earnings and follow a rules-based investment thesis, rather than look to benefit in the short term from the recent optimism among traders.