Indian equity indices closed with slight gains, paring earlier advances, as investors closely monitored escalating tensions in the Middle East. The market volatility stemmed from the renewed conflict between Iran and Israel, which reignited just hours after a US-brokered ceasefire was expected to take effect. Iran's launch of missiles at northern Israel prompted a strong vow of retaliation from Israel, which accused Tehran of violating the truce.

Despite advancing over 1% earlier in the day, the BSE Sensex concluded 151.36 points higher, a modest 0.2% rise, to settle at 82,055. Similarly, the NSE Nifty 50 increased by 72.45 points, or 0.3%, closing at 25,044. According to Umeshkumar Mehta, CIO, Samco Mutual Fund, markets are expected to continue reacting sharply to developments in the Iran-Israel conflict, indicating that such 'knee-jerk reactions' are likely to persist until greater clarity emerges on the conflict's trajectory.

The market breadth remained stronger, with 2,662 stocks advancing and 1,339 declining out of 4,144 traded on the BSE. Both the Nifty Midcap 150 Index and Nifty Smallcap 250 Index registered gains of 0.7%. The Volatility Index (VIX), often referred to as the market's fear gauge, ended 2.9% lower at 13.6 points, suggesting a slight reduction in immediate market anxiety.

Elsewhere in Asia, markets generally performed positively; China gained 1.2%, Hong Kong jumped 2.1%, South Korea moved up 3%, Taiwan advanced 2.1%, and Indonesia rose 1.2%. However, oil prices saw a decline, hitting a two-week low. Brent crude dropped $2.48, or 3.5%, to $69 a barrel, as concerns over potential supply disruptions in the Middle East eased.

Foreign portfolio investors (FPIs) continued their trend as net sellers in the Indian market, offloading shares worth ₹5,266 crore on Tuesday, according to BSE data. In contrast, domestic institutional investors (DIIs) remained net buyers, acquiring shares worth ₹5,209 crore, providing crucial support to the market amidst FPI outflows.

Analysts are advising investors to approach the market with caution. Shrikant Chouhan, executive vice president at Kotak Securities, recommended toning down optimism, suggesting a selective investment approach, gradual deployment of capital, and paring down weak or leveraged bets, especially as the Nifty approaches the 26,000 mark. The prevailing uncertainty stemming from geopolitical events emphasizes the need for careful investment strategies.