Operation Sindoor And Its Impact On Indian Markets
There has been a significant escalation in the tensions between India and Pakistan in the past couple of weeks. After the Pahalgam attack, where 26 Indian civilians were targeted and killed by terrorists, the Indian government launched a series of planned attacks on terrorist camps located in POK and Pakistan. Post that, Pakistan has launched drones and missiles on major Indian cities, military establishments, and even a few places of worship.
Since this is the biggest attack on the Indian civilians since 26/11, it seems that the retaliations from both sides will continue, and the tensions could continue for a few days, even weeks. This will significantly impact economic activities around the country owing to the suspension of airlines, transportation, and possible blackouts.
The stock market has also reacted to Operation Sindoor. The markets have fallen a bit in the past week, but overall, the trends have been flat. However, investors should understand that a longer confrontation between the subcontinental neighbours would have a definitive impact on the investors in the short and long term.
Let us find out more about Operation Sindoor effects on the stock market today and in the future.
What Is Operation Sindoor?
After the dreadful attack on Indian citizens in Pahalgam, the government of India launched ‘Operation Sindoor’, which was a swift 23-minute tri-services strike in retaliation for the April 22 Pahalgam terror attack. It targeted nine terror-linked sites across Pakistan and PoJK, using Rafale jets, drones, and precision missiles. The operation aimed to dismantle key Jaish-e-Mohammed and Lashkar-e-Taiba hubs.
The name Operation Sindoor is significant because it aims at honouring the widows of the victims who lost their ‘sindoor’, indicating their life partner.
How Did The Stock Market React?
1. Nifty & Sensex: Early Dip, Late Recovery
As suggested before, the overall impact of the events that unfolded since the first Indian attack on the terrorist hubs has been mostly flat on the stock exchanges. On 07th May, the market experienced initial volatility but managed to recover before the closing bell, indicating investor confidence in the market's resilience.
However, with the Pakistani aggression and unprovoked attacks on different Indian cities, the markets faced renewed pressure. By May 9, the Sensex had dropped 880 points, settling at 79,454.47, while the Nifty 50 closed at 24,008, reflecting a 1.10% decline. Sensex reaction to military strikes is also quite similar.
2. Volatility Index: Spike Intraday, But Stable By Close
Since Operation Sindoor news hit the market, the VIX witnessed massive increase due to the events and reached 22.7 which is one of the highest levels in the past few months. However, as the news of strong Indian retaliation and foiling all attempts to attack Indian cities hit, the VIX stabilized suggesting that while investors were cautious, panic was largely avoided.
3. Reactions To Past Conflicts
The last time India and Pakistan went to a full-fledged war was in 1971. More recently, during the 1999 Kargil Conflict, the NIFTY fell by 16% during the time infiltration was reported. However, once the conflict started, the stocks increased, and the Nifty 50 benchmark soared by 49% by the end of July1.
The reason for such an increase is attributed to the general positive attitude in the public, the overall trust in the Indian armed forces, relief over clarity, and economic strength demonstrated by the country.
Based on this, Operation Sindoor stock market impact shall be mixed, but investors should demonstrate discipline during the tough period.
Sector-wise Impact: Who Gained, Who Paused?
1. Defence Stocks
Defence stocks in India surged following Operation Sindoor, with companies like Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) rising up to 4% amid heightened India-Pakistan tensions. As India manufactures 88% of the required ammunition, investors expect increased defence spending and fresh orders2. The government called for meetings with defence manufacturers to discuss ramping up production.
2. Mid And Small Caps
There was some volatility in both mid- and small-cap stocks as a few investors opted to rotate capital into sectoral and thematic funds. Hence, the total inflow in these stocks (and funds) decreased slightly.
3. FMCG And Pharma
It is critical to understand that FMCG giant Hindustan Unilever was among the top rallying stocks during the Kargil War. It is still very early to predict the movements of these stocks in the near future. Still, the overall market sentiment and sector-specific factors will continue influencing these sectors.
What Analysts And Experts Are Saying
Priced In: Why Markets Stayed Calm
There are various reasons, the first being the overall trust of the market in the present government and the capabilities of the Indian military. Operation Sindoor had a precise and restrained nature with no civil casualties. People in general did anticipate some retaliation from India post Pahalgam massacre, and hence the entire operation did not come as a surprise.
Buy The Dip: Volatility = Opportunity
Any volatility in the market that results in a reduction in prices of formidable stocks provides an excellent opportunity to long-term investors. Experts advise on maintaining discipline and continuing systematic investment plans (SIPs). Such events can result in short-term jitters but do not impact long-term growth trajectories of companies. Geopolitical tensions and stock market reactions are often predictable, but the Indian market has largely shown resilience so far.
History Repeats: Kargil, Balakot, and Bouncebacks
In all of the recent skirmishes, wars, and surgical strikes, the Indian stock market has demonstrated resilience. After a few jitters and volatility, the market has surged considerably and it can be explained as a market pattern where initial shocks are followed by strong recoveries.
Short-Term vs Long-Term Investor Outlook
Stay Put: Avoid Panic Moves
If you are a long-term investor, the best course of action is to keep invested in the market, as Indian markets have shown resilience during past conflicts, with any downturns being short-lived. It is important to continue systematic investments during the current period.
Long-Term Plays: Defence, Infra, PSUs
Investors can invest in these core sectors for a long period as government focus and spending will improve in the future. Strategic allocation by investors can be made while keeping in mind the potential for growth.
Red Flags: Escalation And Global Triggers
While the immediate market reaction has been measured, investors should remain vigilant about potential escalations in the conflict or adverse global economic developments. If you are a trader, you should know that any escalation will result in a market response, and it is critical to stay informed.
Conclusion
As anyone would expect, Operation Sindoor triggered a negative response and an initial wave of volatility. However, the stock market has shown considerable resilience, echoing past trends during geopolitical tensions.
For investors, the key takeaway is to focus on long-term fundamentals rather than short-term noise. Defence, infra, and PSU themes could gain policy traction, while staying alert to escalation risks is wise.
If history is anything to go by, the Indian stock market always comes back stronger and disciplined investors earn healthy returns in the long-term.
FAQs On Operation Sindoor’s Effect On Stock Market
1. How did Operation Sindoor affect the Indian stock market?
Operation Sindoor triggered early market volatility, but Sensex and Nifty rebounded by the day’s close, showing resilience.
2. Which sectors were most impacted by Operation Sindoor?
Defence stocks rallied, mid & small caps turned volatile, while FMCG and pharma remained largely stable.
3. Should I invest in defence stocks after Operation Sindoor?
Defence stocks look promising long-term, but experts caution against chasing the rally blindly due to overvaluation risks.
4. What happens to markets during geopolitical tensions?
Markets typically react with short-term panic but tend to stabilise and recover once the uncertainty fades.
References:
1. Trade Brains, accessed from: https://tradebrains.in/how-did-stock-market-perform-during-india-vs-pakistan-kargil-war-will-history-repeat-itself/
2. The Hindu Business Line, accessed from: https://www.thehindubusinessline.com/news/indian-army-achieves-88-aatmanirbharta-in-ammunition/article69047222.ece
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