Even as a three-day 2,600-point fall on the BSE Sensex may look excessive to some, analysts warned more downside could be in the offing, thanks to deteriorating global cues, including a sharp surge in crude oil prices and escalating US-Iran conflict. A comprehensive peace deal remains elusive and, despite multiple false dawns, the Straits of Hormuz (SoH) remained shut, they said.

Market could wobble, said Emkay Global.  The market has lost its valuation support and a potential fuel price hike could trigger a short-term correction, it warned.

There is a strong probability of a US-Israel renewal of attacks on Iran over the weekend, said Market expert Ajay Bagga. In post on X today, he cited Israel’s Defence Minister Israel Katz saying his forces are ready to resume war on Iran and are “waiting for a green light from the US,” adding that targets would include critical infrastructure.

"Israel’s UN envoy Danny Danon says extending the Lebanon ceasefire is “not guaranteed at 100%,” despite US President Donald Trump announcing a three-week extension, according to US media reports. This is an unwanted, meaningless war that has led to massive energy supply disruption. Please be careful in carrying any trading positions over the weekend. War risk is elevated," he said.

He added: "Hopefully nothing will happen and we will have some relief on Monday morning at the time of  Asian trading. But the risk is there . So best to be watchful and careful," Bagga said.

Emkay Securities said it has turned cautious on markets after the 11 per cent Nifty rally from the April lows. The West Asia conflict remains in limbo, and an agreement to open the Strait of Hormuz (SoH) remains elusive, despite cessation in hostilities, it said.

"This has sustained pressure on the Indian economy owing to high crude prices, and we think a 10 per cent hike in retail petrol/diesel prices now looks likely, absent an agreement on the SoH. We remain optimistic about an agreement in the coming weeks and continue to see this as a transient phase. However, the market has lost its valuation support (trading near LTA at 19x) and a potential fuel price hike could trigger a short-term correction," Emkay said.

Emkay said stock indices are off April lows, factoring in the ceasefire but ignoring the stickiness in energy prices. This has taken valuation comfort out of the equation.

The Nifty now trades at an FY27E P/E of 18.7 times, and the discount to long-term average is almost gone. 

"We remain confident about the FY27/FY28 earnings recovery. However, we expect 1QFY27 to be soft – already off to a weak start, with 7 per cent of our coverage universe (small sample though) missing forecasts so far. We think the rally could take a break in the short term, with some downside if the SoH impasse is not broken in the next 7-10 days and the fuel price rise goes through," Emkay said.

Meanwhile foreign brokerages HSBC and JPMorgan downgraded Indian equities today, saying domestic stocks look less attractive than peers.

JPMorgan has lowered India's rating from 'Overweight' to 'Neutral'. HSBC, on the other hand, said it has upgraded Korea and downgraded India to 'Underweight' from 'Neutral', as potential inflation and demand pressures are likely to impact earnings growth. It added that foreign investor sentiment is likely to remain cautious on India amid weakening growth and forex pressure. India's valuations have fallen materially from their peak, but they will rise again as earnings cuts come through, it warned.