The Indian stock market and the rupee rallied on Monday, powered by the announcement of a preliminary peace deal in West Asia between the US and Iran. The deal, which is set to be signed on Friday, sent crude oil prices down 5% to below the $84-a-barrel mark, aiding sentiment in both the forex and the stock markets. Other markets in Asia and Europe also gained after the announcement.

The BSE Sensex, which rallied by over 1,100 points in the mid-session ended the session up 736.38 points or 1% at 76,264.33. The National Stock Exchange’s Nifty 50 index also closed 1% higher at 23,853.90. Both indices ended higher for the third straight session. The stock market — having recovered most of its around 11% fall since the war began late February — is now down around 5% from the pre-war levels.

The fall in crude prices, combined with the suite of measures recently announced by the Reserve Bank of India to attract foreign capital, helped the rupee gain 40 paise to end at 94.71, having hit a 5-week high during the session.

“This is a decisively positive setup for the rupee. Over the next one to two weeks, we expect it to strengthen towards 94, and a decisive break of that level would open the door to 93, and potentially 92.5, over the following 2-3 months. For now, 94 is the key level to watch,” said Anindya Banerjee, head of commodity and currency research at Kotak Securities.

Most sectoral indices ended higher, with automobiles, banking and financial services, and oil and gas being among the top performers. Sectors such as aviation and real estate, which benefit from slower crude oil prices and lower interest rates, also gained.

“The sudden easing of geopolitical risk caused Brent crude oil prices to plunge… lifting a massive macro overhang for oil-importing economies like India. This sharp cooling in energy costs has effectively squashed immediate sticky inflation fears, clearing a smooth path for global central banks to pivot toward early interest rate cuts,” said Vikram Kasat, head of advisory at PL Capital.

The peace deal in West Asia, alongside the RBI’s measures to attract foreign capital, is also expected to stem the persistent selling by foreign players in the last few months. Foreign institutional investors (FIIs) have sold $29.3 billion worth of Indian shares since the war began in West Asia, including around $6.65 billion so far in June, according to data from the National Securities Depository Limited. However, the pace of sell-off has already declined from the billions worth of shares being sold every session during the first week of June to millions each session in the last week.

If the peace deal is signed as scheduled on Friday, crude prices may fall below $80/bbl, and the focus of investors will then shift to corporate earnings growth, as well as the inflationary threat posed by El Nino over the next few months, according to experts. “The entire narrative surrounding higher crude, higher inflation, and higher interest rates seemed to be cooling as of now. The key monitorable now would be the monsoon spread, as monsoon has been delayed this year (due to the El Nino),” said Sunny Agrawal, head of research at SBICAPS Securities.

Despite some concerns still remaining, the peace treaty and the subsequent fall in oil prices may lead to the markets rising more in the near term, Agrawal added.

The announcement of the preliminary peace deal also sent other markets in Asia and Europe soaring. The Japanese and the South Korean markets, which are both heavy net importers of crude, gained around 5% each. The STOXX 500 index, which consists of the top 500 European stocks, hit a record high after the announcement.