Indian stock gauges lost nearly 1% Monday after Israel and Iran fired missiles at one another in renewed hostilities that stoked oil prices, while a sectoral churn away from AI-related investments by overseas funds dimmed the allure of risk assets across Asia-Pacific.

NSE’s Nifty fell 243.7 points, or 1%, to close at 23,123, and BSE’s Sensex declined 719.08 points, or 1%, to end at 73,524.26.

Both indices had opened lower after Iran and Israel had launched attacks against one another, underscoring fragility of the truce in one of the world’s highly militarised regions.

The VIX is now up more than 85% this year.

Brent crude August futures inched up by 1.5% to $94.5 on Monday. “Indian markets weakened due to the ongoing escalation in West Asia, which continues to weigh on investor sentiment, as well as a rotation of global capital from AI-related stocks into other sectors ahead of the SpaceX IPO, which also led to a sell-off in major Asian indices,” said Pankaj Pandey, head of fundamental research, ICICI Direct.Elsewhere in Asia, Japan fell 3.9%, China declined 1.7%, Hong Kong fell 1.2%, South Korea declined 8.3% and Taiwan dropped 3.5%.

The pan-Europe index Stoxx 600 was flat at the time of going to print.

Pandey said that if crude oil prices remain elevated, Indian companies may be compelled to implement further price increases in the coming months.

Geopolitical risk aversion, global AI portfolio rebalancing leading to FPI outflows, and most importantly, sideways earnings growth continue to be the dominant near-term variables, said Kush Gupta, fund manager, SKG Investments & Advisory.

“We expect the broader market to remain range-bound in the near to medium term. Large and mid-caps offer better valuation comfort and stability, while small-caps could face greater pressure due to elevated valuations, thinner earnings buffers, and lower pricing power,” he said.

Broader market indices also saw a sharp fall, as the Nifty Midcap 150 dropped 1.5% and Nifty Small-cap 250 fell 1.8%. Out of the total 4,537 shares traded on the BSE, 1,181 advanced and 3,192 declined at close.

The Nifty is currently in a corrective trend, trading below its short-term averages, said Pabitro Mukherjee, deputy vice president- research at Bajaj Broking.

Mukherjee said that Nifty, after the recent corrective decline, has approached the immediate support area of 23,000-23,200, and holding above the support area will lead to consolidation in the range of 23,000-23,550 in the coming sessions.