The Middle East conflict has remained a key headwind for the global economy, heightening investor nervousness and driving flows toward safe-haven assets. For India, the key risk to its growth outlook lies in a prolonged closure of the Strait of Hormuz and delays in resolving the conflict, which could push oil prices higher, fuel inflationary pressure and create unfavorable economic conditions.

That said, rising optimism around de-escalation and the prospect of a more lasting resolution is helping to improve sentiment. This shift has supported India equities, with the Nifty 50 moving back into positive territory. The benchmark index has gained roughly 2.99% over the past month and about 1.32% over the past five days.

Despite this recent rebound, the index remains down around 7.55% year to date. Escalating geopolitical tensions had earlier triggered sharp foreign investment outflows, pushing India’s markets into negative territory. The benchmark index fell about 10% in March but has rebounded by approximately 8.3% since the start of April.

In this context, near-term volatility may present a compelling entry point into India-focused ETFs, as short-term weakness continues to mask strong long-term fundamentals. India’s economic outlook remains constructive, supported by favorable demographics, a growing base of long-term investors, rising AI-related investments, progress in chip design and digital infrastructure and rapid digital transformation.

This positive outlook is further reinforced by Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), who has highlighted that India is poised to remain a key growth driver in an uncertain global landscape, with expansion expected to exceed twice the global average, underpinned by strong fundamentals, as quoted on an Economic Times article.

According to Georgieva, India’s growth trajectory remains stable, with no signs of a disruptive downturn, even amid global volatility caused by geopolitical tensions and supply-side shocks from the Middle East conflict. She highlighted macroeconomic stability and resilient domestic demand as key drivers of this outlook.

Strong Fundamentals Continue to Support India’s Growth Story

S&P Global Ratings notes that while a sustained surge in oil prices could slow down India’s growth by up to 80 basis points if crude averages $130 per barrel in 2026, the impact is likely to be cushioned by strong macro fundamentals. Healthy corporate balance sheets, well-capitalized banks and a resilient external position act as key shock absorbers, as per the Economic Times.

Persistently elevated oil prices may strain the economy, as rising import costs could lead to a widening current account deficit. The agency warned that an energy shock could drive up input costs, squeeze margins, lift inflation and strain fiscal balances, while fuel supply disruptions could further weigh on growth.

However, S&P Global Ratings noted that India entered 2026 from a position of strength, supported by robust growth momentum, resilient demand and low inflation, which should help cushion near-term shocks. Strong domestic fundamentals and improved corporate and banking sector health are expected to limit the impact.

The IMF nudged up India’s fiscal year 2027 GDP growth forecast to 6.5% from its January projection, but flagged that escalating geopolitical tensions, particularly the Middle East conflict, pose risks to global growth and could sustain near-term inflationary pressures, as quoted on the Economic Times.

The IMF also expects India’s growth to remain steady at 6.5% in fiscal year 2028, underscoring the economy’s resilience amid a challenging global backdrop. This outlook is driven by solid carryover momentum from 2025, easing tariff pressures and strong domestic demand, despite ongoing global spillover risks.

Assessing the Energy Risk

According to Crisil Intelligence, as quoted on another Economic Times article, while the West Asia conflict has triggered a substantial increase in global energy prices, its effect on India’s retail inflation has been relatively modest so far.

India’s CPI inflation rose slightly to 3.4% in March from 3.2% in February, largely due to increases in food and fuel prices. Still, the wider impact of the global energy shock has been limited, aided by government efforts to cushion consumers.

Despite the limited inflationary impact so far, India’s energy security remains a key concern. As the world’s third-largest oil importer, the country is exposed to sustained supply disruptions, making energy self-reliance a critical priority in an increasingly volatile global environment.

Is Nuclear Energy India’s Answer to Energy Security?

India’s progress on its prototype fast breeder reactor marks a significant step toward energy self-reliance, representing a key milestone in its nuclear energy journey and strengthening its long-term energy security.

According to Al Jazeera, the reactor has reached a self-sustaining stage, marking a major advancement in its nuclear program and reducing reliance on uranium. Upon full operation, India would become only the second country after Russia to deploy a commercial fast breeder reactor.

This progress comes at a time when India’s energy demand is set to rise sharply, underscoring the risks of continued dependence on fossil fuels, especially amid geopolitical shocks that disrupt global energy markets. While nuclear energy currently accounts for just about 3% of the country’s energy mix, India has ambitious plans to scale capacity from 8,180 MW in 2024 to 100 GW by 2047.

The next phase of India’s nuclear program will focus on third-stage reactors designed to run on thorium. As highlighted in the Al Jazeera report, the successful execution of this strategy could significantly reduce dependence on uranium and enable a transition toward thorium-based energy. This is particularly important given that India holds nearly a quarter of the world’s thorium reserves.

According to Srinivaasan Balakrishnan, Director of Strategic Engagements at the Indic Researchers Forum, as quoted on South China Morning Post, self-sustaining nuclear reactions can shield the economy from volatile global commodity cycles while providing the reliable baseload power needed to drive sustained industrial growth.

Beyond strengthening energy security, these developments could also help reduce the country’s import dependence and limit fiscal strain over the long term.

Exploring India ETFs

The Middle East conflict and its aftereffects pose near-term challenges for India’s markets. While these risks may weigh on short-term performance, they contrast with a more stable long-term outlook. India’s underlying economic fundamentals remain relatively strong, offering investors an opportunity to tap into its long-term growth story.

Against this backdrop, we have highlighted a few India ETFs that investors can consider to capitalize on the country’s long-term outlook.

Investors can consider iShares MSCI India ETF (INDA Quick QuoteINDA - Free Report) , WisdomTree India Earnings Fund (EPI Quick QuoteEPI - Free Report) , Franklin FTSE India ETF (FLIN Quick QuoteFLIN - Free Report) , iShares India 50 ETF (INDY Quick QuoteINDY - Free Report) , First Trust India NIFTY 50 Equal Weight ETF (NFTY Quick QuoteNFTY - Free Report) , VanEck India Growth Leaders ETF (GLIN Quick QuoteGLIN - Free Report) and VanEck India Select ETF (INDZ Quick QuoteINDZ - Free Report) .