India’s equity markets experienced a volatile but ultimately resilient session on Wednesday following the announcement of significant military action against Pakistan.
While benchmark indices opened sharply lower in immediate reaction to news of India’s retaliatory strikes, known as ‘Operation Sindoor’, they quickly pared losses, suggesting investors, while watchful, were not panicking about the escalation.
The trading day began under the shadow of heightened geopolitical tensions.
India confirmed early Wednesday that its Armed Forces had launched precision missile strikes targeting nine terrorist sites located in Pakistan and Pakistan-occupied Kashmir (PoK).
This action, codenamed ‘Operation Sindoor’, was explicitly positioned by India as a “precise and restrained response” to the recent deadly terror attack in Pahalgam, designed to be “non-escalatory” and focused solely on “known terror camps” while avoiding civilian or Pakistani military targets – a characterization disputed by Pakistan.
The immediate market reaction was negative, with the Sensex opening 692 points lower at 79,948.80. However, this initial dip proved short-lived.
The index quickly erased these losses and even pushed into positive territory, rising over 200 points to touch 80,845 before settling back into a more volatile, range-bound pattern.
Around 10 AM, the Sensex was down just 32 points (0.04%) at 80,609, while the Nifty 50 was hovering near the flatline, down 19 points (0.08%) at 24,361.
The BSE Midcap index was flat, while the Smallcap index remained down 0.33%, indicating slightly more pressure on smaller stocks.
Expert analysis: measured strike limits market panic
Market experts attributed the relatively contained market reaction, despite the significant military action, to the perceived nature of the strikes.
The focus on terrorist infrastructure, rather than broader military or economic targets, was seen as a key factor in preventing widespread panic.
“What stands out in ‘Operation Sindoor’ from the market perspective is its focused and non-escalatory nature,” VK Vijayakumar, Chief Investment Strategist at Geojit Investments, told Live Mint.
We have to wait and watch how the enemy reacts to these precision strikes by India. The market is unlikely to be impacted by the retaliatory strike by India since that was known and discounted by the market.
The clear messaging that India sought retaliation against terror camps, not broader escalation, appeared to reassure investors.
However, experts acknowledge the potential for further developments.
“There could be some reaction from Pakistan, as it may feel the need to save face,” Vijayakumar added, though he also noted, “Pakistan does not have the economic muscle to sustain a prolonged conflict.”
Historical context: market resilience during past conflicts
History offers some perspective on the Indian market’s behavior during periods of conflict with Pakistan.
Generally, the market has shown remarkable resilience, often supported by the underlying strength of the domestic economy.
During the 1999 Kargil War (May 3 – July 26), the market experienced only a minor decline of 0.8%.
Even during the two days of the Mumbai 26/11 terror attacks in 2008, the Sensex actually climbed roughly 400 points.
While the market did react negatively after the 2019 Pulwama attack (indices dropped over 1.8% between Feb 14 – Mar 1), subsequent actions like the Balakot airstrikes saw varied responses.
“Market responses may be muted during times of Indo-Pak conflict,” Vijayakumar explained.
The domestic market has never panicked during such episodes, as India holds a clear advantage in a conventional war.
Trivesh D, COO of Tradejini, echoed this, pointing out the Sensex surged 37% during the Kargil War period and saw only minor dips post-Pulwama before resuming its uptrend.
“History indicates that corrections are typically mild and quickly rebound,” Rajesh Sinha, Senior Research Analyst at Bonanza Group, told Live Mint.
Investment strategy: focus on quality, avoid panic
Given the current situation, market experts advise investors against panic selling and recommend focusing on quality, particularly in the large-cap space, which tends to offer more stability during volatile periods.
“Even as small-cap and mid-cap segments could lag as a few investors turn defensive amid border tensions, the situation offers a compelling opportunity to be overweight in quality large-cap stocks,” suggested Sinha.
A diversified portfolio approach is recommended. Sinha highlighted sectors like leading banks (with strong capital), FMCG (due to inelastic demand), and potentially defence contractors (on hopes of increased budgets) as areas that might show relative strength.
Trivesh D also suggested keeping an eye on defence and infrastructure, while noting the defensive nature of Pharma and FMCG.
He cautioned against “knee-jerk buying based on fear or news flow,” urging investors to “stay aligned with the broader trend and use any dips to enter quality names.”
Vijayakumar noted that valuations remain elevated (Nifty > 20x FY26 earnings), suggesting “no deep value in any sector.”
However, he still sees bright prospects for financials and potential in telecom, while viewing the defence sector as having received a sentimental boost but lacking deep value currently.
The key takeaway is to remain invested but exercise caution, focusing on fundamentally sound companies.
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