Geopolitical Tensions Roil Indian Markets: Sensex and Nifty Face Volatility Amid India-Pakistan Conflict

The recent India-Pakistan standoff, codenamed Operation Sindoor, triggered a sharp selloff in Indian equity markets, with the Sensex and Nifty 50 both falling over 1% in a single session (May 9) as geopolitical risks overshadowed economic fundamentals. This article examines the event’s impact, sectoral shifts, and the outlook for investors.

The Catalyst: Escalating Geopolitical Tensions

On May 8, 2025, Pakistan launched drone and missile attacks targeting Indian military installations in Jammu and Kashmir, marking the first direct strikes since the April 22 Pahalgam terror attack. India retaliated with precision strikes on terror infrastructure in Pakistan, escalating cross-border hostilities.

The markets reacted swiftly:
- The Sensex closed at 79,454.47 on May 9, a loss of 880 points (1.10%), while the Nifty 50 fell to 24,008, down 266 points (1.10%).
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- The India VIX volatility index surged 7% to 22.27, signaling heightened uncertainty.

"Geopolitical risks have pushed investors toward caution," said Prashanth Tapse of Mehta Equities, noting that the conflict’s potential escalation outweighed recent FII inflows.

Sectoral Divide: Winners and Losers in Volatile Markets

The conflict created stark contrasts in sectoral performance, driven by investor rotation and macroeconomic fears:

Defense & Drone Stocks Surge

• Defense indices like the Nifty India Defense rose 0.94%, with ideaForge Technology (a drone manufacturer) jumping 17% as demand for defense tech surged.
• Bharat Electronics and Paras Defence gained 4-5%, benefiting from expectations of increased government procurement.

Travel, Real Estate, and Banks Falter

• Nifty Bank fell 1.42%, with ICICI Bank down 3.24%, as geopolitical risks dampened lending sentiment.
• Nifty Realty dropped 2.38%, reflecting fears of reduced consumer spending amid economic uncertainty.
• Airline stocks like IndiGo fell 5% as airports in conflict zones shut temporarily, disrupting travel.

Underlying Resilience Amid Volatility

Despite the selloff, India’s equity markets showed resilience compared to Pakistan’s. The Nifty 50’s 0.57% decline since April 22 contrasts sharply with Pakistan’s KSE-100 index, which plummeted 13.5% during the same period. Analysts attribute this to India’s $5 trillion market capitalization—245 times larger than Pakistan’s—and its $688 billion forex reserves, which buffer against external shocks.

"India’s conventional military superiority and robust macro fundamentals limit prolonged declines," argued Dr. VK Vijayakumar of Geojit Financial Services, citing Moody’s revised GDP forecast of 6.3% for 2025 (down from 6.5%) but noting a rebound to 6.5% in 2026.

Conclusion: Navigating Uncertainty with Caution

The India-Pakistan conflict highlights how geopolitical risks can override economic data in the short term. Investors should:
1. Focus on defensive sectors: Defense, IT, and PSU banks showed relative resilience.
2. Monitor geopolitical de-escalation signals: A resolution could spark a rebound in travel, real estate, and consumer stocks.
3. Watch FII flows: Despite the selloff, FII inflows of ₹2,585 crore on May 7 indicate sustained interest in India’s long-term growth.

The Sensex’s decline to ₹79,454 marks a buying opportunity for contrarian investors, but geopolitical risks remain until tensions ease. As Aditya Gaggar of Progressive Shares advised: "Avoid panic selling—India’s fundamentals remain intact."

This column synthesizes geopolitical and market data to guide investors through turbulent times, emphasizing resilience amid uncertainty.