New Delhi, April 13 -- Markets are bracing for a storm after the Islamabad peace talks stalled on Sunday, breaking a brief spell of relief following the US-Iran ceasefire on 8 April.

While stocks, currency and energy markets are expected to take a beating, the broader economy appears set for protracted headwinds. Economists warned that a protracted war would raise inflation and interest rates, cooling growth. Alongside, the El Nino effect on monsoon threatens the Economic Survey's projection of a 6.8-7.2% growth, presented nearly a month before the war broke out.

The US said it had presented its "final and best offer" regarding non-proliferation, while Iran rejected the terms as "excessive demands". Soon after the collapse of talks, pre...