Operation Sindoor: Why are Sensex, Nifty 50 resilient amid escalating India-Pakistan tensions? EXPLAINED

Despite rising tensions between India and Pakistan, the Indian stock market has exhibited remarkable resilience over the last few sessions. On Wednesday, May 7, the benchmark Sensex remained lacklustre but avoided any knee-jerk reaction during the session after India said it carried out Operation Sindoor.

The Sensex closed 106 points, or 0.13 per cent, higher at 80,746.78, while the Nifty 50 closed 35 points, or 0.14 per cent, up at 24,414.40. The BSE Midcap and Smallcap indices jumped 1.36 per cent and 1.16 per cent, respectively.

Why are Sensex, Nifty 50 resilient amid escalating India-Pakistan tensions?

There are five crucial reasons behind the Indian stock market's resilience. Let's take a look:

1. Solid FIIs buying

Foreign institutional investors (FIIs) have been on a buying spree of Indian equities in the cash segment, underpinning the market.

Till May 6, FIIs have bought Indian equities worth ₹7,062 crore in the cash segment, after investing ₹2,735 crore in the previous month.

"The main catalyst of the market resilience in India is the sustained FII buying of the last 14 trading days, which has touched a cumulative figure of ₹43,940 crore in the cash market," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

"FIIs are focused on the global macros like weak dollar, slower growth in the US and China in 2025 and India’s potential outperformance in growth. This can keep the market resilient," Vijayakumar said.

2. Peak anxiety over India and Pakistan may be behind

Even though there is much uncertainty on how Pakistan will respond to the Operation Sindoor, experts say Pakistan may not escalate the issue further as it lacks economic muscle.

"The market's biggest concern — the risk of a full-blown war — now appears to be behind us, which is providing a sense of relief. Additionally, there are no strong indications that Pakistan intends to escalate the situation further," said Pankaj Pandey, the head of research at ICICI Securities.

Historical trends also suggest that the Indian stock market does not go in a panic mode in case of heightened tensions between India and Pakistan.

"Short-term market swings during geopolitical events are unsettling, but history shows that they rarely derail India’s long-term growth story. In the long term, the macroeconomic factors and corporate earnings drive the stock market performance," said Kotak Securities.

3. Market eyes earnings growth

After disappointing earnings growth in FY25, the market is expecting a decent revival in earnings growth due to a healthy outlook for the Indian economy. This is keeping the market up by triggering buying on dips in key indices.

"After last year’s low single-digit earnings growth, this year could see a rebound into low double digits. Selling pressure in key sectors like oil & gas and banking appears to have eased, helping indices and blue-chip stocks maintain their footing," said Pandey.

4. US Fed in focus

Even though the US Federal Reserve is expected to hold rates today, the market is discounting a rate cut next month as the US economy shows signs of slowing.

"Looking at the scenario, there could be a rate cut in the next meeting," said Vijayakumar.

The market will focus more on the tone of the central bank's Chair, Jerome Powell, and his assessment of growth and inflation trends than on the policy outcome.

5. Market undertone remains positive

A confluence of factors, such as strong domestic demand, government measures, and the prospects of a healthy monsoon, keeps the outlook for the Indian economy bright.

While the global trade war is likely to have a low and manageable impact on the Indian economy, even the Indo-Pak episode is unlikely to significantly affect the domestic economy.

The ratings and research agency Moody's said that they do not expect any major economic disruptions in India's economic activity due to the rising tensions between Pakistan and India after the Pahalgam terrorist attack.

"Things are looking a lot better from the macro perspective. Crude oil prices are down, the dollar is weak, and the monsoon is also likely to be healthy this year. There are also expectations of further rate cuts by the RBI. All this keeps the undertone of the market positive," said Pandey.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.