‘Operation Sindoor’ jitters fade: Nifty, Sensex script a resilient green run

The equity markets shrugged off early nerves on Wednesday following India’s attack on Pakistani terror camps to end the day’s trading session with quiet gains. 

Despite pre-open indications of a sharp 1% gap-down, the benchmark indices opened only slightly lower and swiftly clawed back losses. The Nifty 50 eked out a 0.1% gain, closing at 24,414.40 points, while the Sensex edged up 0.1% to settle at 80,746.78, reflecting the market’s underlying resilience amid geopolitical headwinds.

But the India VIX, often called the market’s fear gauge, spiked 4% intraday before settling just 0.3% higher—signaling elevated volatility despite the lukewarm market reaction to the escalating India-Pakistan conflict.

“We will still have volatility and downside from time to time as global economic developments play out," said Aashish Somaiyaa, chief executive of WhiteOak Capital AMC.

Considering the Nifty 50’s 10% gain in the past month amid global trade uncertainty, Somaiyaa said the market may have priced in too much optimism already. The optimism may also stem from a stabilizing rupee, easing bond yields, and a handful of strong earnings from large-cap companies, he said.

The broader market stole the spotlight on Wednesday, with the Nifty Midcap 100 surging 1.6% and the Nifty Smallcap 250 gaining 1.2%, comfortably outperforming the headline indices.

Pakistan’s benchmark KSE-100 index nosedived as much as 6% intraday on Wednesday before clawing back some of the losses to close 3% lower.

India launched ‘Operation Sindoor’ early Wednesday targeting Pakistani terror sites, including some linked to the attack on tourists in Kashmir’s Pahalgam area two weeks ago that killed 26 people.

“The key question is whether this turns into a full-fledged conflict or remains a limited defence strike," said Kranthi Bathini, director of equity strategy at WealthMills Securities, adding that a wider escalation could dent investor sentiment while a contained response may barely leave a mark on the markets.

“The geopolitical risk that was hanging over the Indian markets has crystallized today with the Indian strikes on POK and Pakistan-based terror camps," market expert Ajay Bagga said, adding that the impact of such events on the markets tends to be sharp but short-lived. “The future impact on the market will depend on whether this strike remains contained to today or if it expands."

Kotak Mutual Fund said in a note on Wednesday that the Indian government's action suggested there was low possibility of a war breaking out. But while market direction is hard to predict, past India-Pakistan conflicts have caused only temporary dips, with history showing that geopolitical shocks rarely derail India’s long-term growth, Kotak Mutual fund added.

Also read | India resilient to economic fallout from escalating tensions with Pakistan

Resilient during conflicts

Although the market is bracing for the fallout of escalating tensions between India and Pakistan, data from the past two decades indicate India’s equity markets typically rebound swiftly, often showing little lasting impact from such events in the long run.

India has seen four major wars since 1950. During the Kargil war in 1999, the previous major conflict between the two nuclear-armed neighbours, India's equity markets remained robust after an initial panic, Kotak Mutual Fund said.

On 26 February 2019, when the Indian Air Force struck terror camps in Balakot, the Sensex fell 239 points and the Nifty 50 shed 44 points. But the markets bounced back the very next day, with the Sensex opening 165 points higher and closing flat. 

The Pulwama terror attack on 15 February 2019 that had triggered the Balakot strikes had a muted impact on the markets, with the benchmark indices edging down just 0.2% that day. 

In contrast, India’s 2016 surgical strikes on Pakistani terror camps after the Uri attack had rattled investors, dragging the Sensex down by over 400 points and the Nifty 50 by 156 in a single session.

Also read | BSE, NSE cut website access outside India ahead of ‘Operation Sindoor’

India’s economic resilience

Aniruddha Sarkar, chief investment officer and portfolio manager at Quest Investment Advisors, said that despite geopolitical tensions the past two weeks following the Pahalgam terror attack, foreign inflows have continued, reflecting confidence in India’s economic resilience.

Moody’s said in a recent report titled ‘Sovereign–South Asia’ that India’s economic fundamentals remained solid, underpinned by robust public investment and resilient private consumption.

“With FII (foreign institutional investors) flows continuing to be strong on the back of trade deals with the US in advanced stages and with India-UK FTA (free trade agreement) already signed, I see Indian rupee remaining strong in the near term," said Sarkar.

“Beyond the war rhetoric, investors should stay focused on corporate earnings trajectories, which ultimately determine stock prices," he said, adding that recent market corrections, coupled with encouraging quarterly results, presented attractive investment opportunities.

With foreign investors recently turning net buyers, Bathini of WealthMills Securities said the trajectory of the rupee would depend on how the India-Pakistan tension evolves.

The rupee weakened the most in a month against the US dollar following India’s military strikes on Pakistan. The currency gained 37 paise to close at 84.83 against on Wednesday, the sharpest rise since 9 April. Intervension by the Reserve Bank of India prevented the rupee from depreciating beyond the intra-day high of 84.94.

Also read | Does Pakistan have the wherewithal to fight India?