Operation Sindoor: How the India-Pakistan Conflict Could Impact the Indian Stock Market
Tensions between India and Pakistan have escalated following Operation Sindoor, marking India’s deepest military action inside Pakistani territory since 1971. Despite the geopolitical risks, the Indian stock market displayed resilience, raising questions about future investor strategy. Here’s a breakdown of how the situation is unfolding and what it could mean for markets.
Market Resilience Amid Escalation
On Wednesday, markets opened with mild losses as news broke of India’s targeted missile strikes on nine terror locations across Pakistan and Pakistan-Occupied Kashmir.
- However, indices quickly reversed course, with Sensex rising 70 points to 80,710 and Nifty gaining 10 points to touch 24,403, buoyed by strength in banking stocks and Tata Motors.
- The Nifty PSU Bank index rebounded sharply after prior losses, emerging as the top-performing sector, while Nifty Media lagged behind.
This initial market behavior suggests that investors are currently discounting the impact of the military operation due to its precision and limited scope.
Technical Indicators Reflect a Shift
Technical trends suggest caution, even as index levels remain firm.
- Only 23.8% of Nifty 500 stocks are trading above their 10-day SMAs, indicating a loss of momentum in the broader market.
- Market analysts from Geojit Investments point out potential support zones between 24050–23930, while any failure to breach below 24280 could trigger a quick recovery.
The muted technical breadth suggests underlying market fragility, even if frontline indices remain steady.
Currency Volatility Mirrors Geopolitical Concerns
The Indian rupee fell 31 paise to 84.66 against the US dollar amid heightened cross-border tensions.
- This decline followed India’s strikes on high-profile terror camps, including Jaish-e-Mohammad’s base in Bahawalpur and Lashkar-e-Taiba’s facility in Muridke.
- Such currency movements reflect global investor anxiety, especially in emerging markets exposed to geopolitical risk.
The rupee’s decline highlights a key area of concern for investors — foreign exchange volatility during regional conflicts.
Why Markets Are Discounting Operation Sindoor
According to experts, markets are reacting mildly because the strike was expected and non-escalatory in nature.
- India described the operation as “precise and restrained”, deliberately avoiding civilian or economic infrastructure, signaling no intent for further escalation.
- Dr. VK Vijayakumar from Geojit Investments explains that the predictability of the event allowed it to be priced in by investors, muting its immediate impact on equity sentiment.
This approach by India has helped calm investor nerves, despite the gravity of the action.
FII Inflows Provide a Strong Cushion
The stock market’s buoyancy has been largely supported by strong Foreign Institutional Investor (FII) inflows.
- FIIs have purchased over ₹43,940 crores in the last 14 sessions, reflecting confidence in India’s macroeconomic outlook.
- Global headwinds like a weak US dollar and slower growth in the US and China are encouraging investors to reallocate capital to India, anticipating outperformance.
These sustained inflows are acting as a shock absorber for geopolitical risks.
What Should Investors Do?
While markets are currently stable, investors should remain vigilant.
- Any unexpected escalation or retaliation could lead to a spike in volatility, particularly in sensitive sectors like defense, oil, and banks.
- Conservative investors should monitor border developments closely, maintain stop-loss strategies, and consider diversifying across defensive sectors such as FMCG and IT.
For long-term investors, India’s macro strength and foreign capital support provide reason to stay invested but with measured risk management.
