India-Pakistan Tensions: How the Conflict Could Affect Indian Stock Markets
Growing geopolitical tensions between India and Pakistan, triggered by a recent terrorist attack in Kashmir’s Pahalgam region, have injected fresh uncertainty into the Indian stock market. As investors assess the potential risks, market experts are cautioning about heightened volatility in the coming days.
Indian Stock Market Performance This Week
Despite the uneasy political backdrop, both the benchmark indices—Nifty 50 and BSE Sensex—managed to end the week with gains. Over the past five days, the Nifty 50 rose by 0.80% to close at 24,039.35, while the BSE Sensex ended at 79,212.53.
However, Friday witnessed a sharp sell-off after tensions escalated between India and Pakistan. According to Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, Indian indices declined after a strong start earlier in the week.
“Profit booking came in after cross-border tensions flared up following the terrorist attack in Kashmir,” Khemka noted.
“Nifty closed 207 points lower, down by 0.9%.”
Interestingly, the Nifty IT sector bucked the negative trend, registering a 0.7% gain, helped by a rally in the tech-heavy Nasdaq index in the U.S. Meanwhile, sectors like hotels and aviation faced pressure, with tourism likely to be impacted following the attack.
Adding to the signs of volatility, the India VIX, which measures market fear, spiked by 11% during the week—partially reversing its sharp 23% decline from the previous week.
Historical Patterns During India-Pakistan Conflicts
History suggests that Indian equity markets have shown remarkable resilience during periods of geopolitical tension. Vinod Nair, Head of Research at Geojit Financial Services, pointed out that
“Foreign investors are likely to adopt a ‘wait and watch’ approach in the near-term, but historically, India’s markets have withstood geopolitical shocks well due to the strength of the domestic economy.”
Further supporting this, a report by Anand Rathi stated that past confrontations with Pakistan, including the 2001 Parliament attack, saw limited market corrections.
In fact, the report highlights that
- Corrections during conflicts averaged around 7%,
- With a median dip of just 3%.
Even during the Parliament attack, Indian equities were more influenced by global factors like the concurrent 30% fall in the U.S. S&P 500 than the conflict itself.
Based on these historical precedents, Anand Rathi analysts believe that even in the case of a substantial escalation, the Nifty 50 is unlikely to fall by more than 5–10%.
Investors are advised to stick to the 65:35:20 portfolio strategy (65% equities, 35% debt, and 20% in alternative assets) and treat any sharp dips as opportunities to accumulate quality stocks for the long term.
What to Expect for the Indian Stock Market?
The coming days will be critical as market sentiment will be heavily influenced by any fresh military developments between India and Pakistan.
Rajesh Bhosale, Equity Technical Analyst at Angel One, observed that while Friday’s tensions erased much of the week’s gains,
“The bulls staged a strong comeback later in the session, helping Nifty to close slightly above the key 24,000 mark.”
According to Bhosale:
- Immediate resistance for Nifty is seen at 24,250–24,350.
- Key support zones lie between 23,900–23,800.
- A breach of support could drag the index further down towards 23,500–23,300.
However, the overall structure remains bullish unless these supports are broken decisively.
Midcap stocks, represented by the Nifty Midcap Index, have faced resistance at their 200-day simple moving average (DSMA). Until this resistance is surpassed, a selective approach toward midcaps is advised.
Final Thoughts
While geopolitical risks have undoubtedly injected caution into the Indian stock markets, long-term investors may find opportunities amid any corrections. The Indian economy’s strong fundamentals, historical resilience to external shocks, and robust corporate earnings trends suggest that markets may weather this storm without severe damage.
However, investors should remain alert, especially over the weekend, as any escalation in India-Pakistan tensions could influence Monday’s market opening dramatically.
In short, while short-term volatility is a given, history suggests that Indian stock markets tend to bounce back swiftly after geopolitical disturbances, rewarding those who stay patient and strategic.
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