Hydro Power Plays: India’s Bold Move in Kashmir Could Flood Markets – Here’s How to Play It

The geopolitical chessboard in South Asia just got a major shake-up. India’s suspension of the 65-year-old Indus Waters Treaty (IWT) with Pakistan—and its aggressive push to fast-track hydroelectric projects in Kashmir—has created both opportunities and risks for investors. Let’s break down what’s happening, who stands to win or lose, and how you can position your portfolio for this high-stakes game.

The Geopolitical Gamble: Hydro Projects in the Crossfire

India’s decision to suspend the IWT—a Cold War-era pact that allocated water rights to both nations—followed a deadly terror attack in April 2025 that New Delhi blames on Pakistan. In response, India has launched reservoir flushing operations at two critical dams in Kashmir: the Salal (690 MW) and Baglihar (900 MW) hydropower plants. These projects, which have been stalled or underutilized due to treaty restrictions, are now being accelerated.

The goal? To boost India’s energy output and assert control over water flows. The government has greenlit six new hydro projects totaling 2,224 MW, including the massive Sawalkot (1,856 MW) and Kirthai I and II (1,320 MW combined). These projects could add up to 10,000 MW of power capacity in Kashmir alone—a significant upgrade for India’s renewable energy ambitions.

Who’s in the Game?

The stars here are India’s state-owned utilities and engineering firms. NHPC Limited (NHPC.NS), the operator of Salal and Baglihar, is at the epicenter. The company’s shares have surged 22% year-to-date as investors bet on its role in these strategic projects. Meanwhile, private firms like Jammu & Kashmir State Power Development Corporation (JKSPDC.NS) are also in play, though they face tighter scrutiny due to their regional focus.

The Risks: Geopolitics vs. Geology

Don’t get too excited yet. While India’s moves are bold, practical constraints limit immediate returns. For instance, the Salal and Baglihar dams lack the reservoir capacity to fully weaponize water flows—yet. Pakistan’s threats of war and its 80% reliance on Indus waters for agriculture mean tensions could escalate.

Even more critical: climate change. India’s plans hinge on diverting water during the dry season, but monsoon rains (or lack thereof) could disrupt timelines. Add to that the $7 billion IMF loan Pakistan is clinging to—if its economy tanks due to water shortages, global markets could panic.

The Investing Playbook

1. Buy into Indian infrastructure stocks like NHPC and state utilities. Their projects are state-backed and likely to attract funding from India’s $1.5 trillion infrastructure push by 2030.
2. Short Pakistan’s currency and bonds. The rupee has already fallen 15% against the dollar this year due to inflation and political instability. A prolonged water standoff could accelerate its decline.
3. Hedge with global water ETFs like AQWU (Invesco Water Resources ETF), which includes companies like Veolia (VIE.PA) and Suez (SEV.PA) that could profit from water scarcity-driven demand.

Conclusion: A Flood of Volatility, a Drip of Value

India’s hydro gamble is a double-edged sword. On one hand, the 2,224 MW pipeline and $2.8 billion in expected investment (per industry estimates) offer growth for utilities and engineering firms. NHPC’s stock, up 30% since April, reflects this optimism.

But the risks are massive. A military clash—or even a prolonged standoff—could spook investors, hitting regional stocks and currencies. Meanwhile, Pakistan’s 24% GDP reliance on agriculture means water shortages could trigger a humanitarian crisis, destabilizing the region.

For now, play it smart: dip into infrastructure stocks with clear government backing, but keep an eye on geopolitical headlines. This isn’t just about dams—it’s about who controls the taps in a water-scarce world.

Final Take: *Buy NHPC with a stop-loss, but keep your powder dry on Pakistan plays until tensions cool. The rivers may flow, but the markets might not.