India-Pakistan Conflict Sparks Sharp Decline in Indian Stock Markets
| 2025-05-10
Representative image.
Rising India-Pakistan tensions prompted foreign investor selloff, causing the Sensex to drop 880 points and erasing billions in market capitalisation.
Indian markets tumble as geopolitical tensions rise
Indian stock markets fell sharply on Friday following an escalation in hostilities between India and Pakistan, with the benchmark Sensex closing 880 points lower amid heightened geopolitical uncertainty and a shift in foreign investment sentiment.
The BSE Sensex ended the day down 880.34 points, or 1.1%, at 79,454.47, marking its steepest single-day decline in over a month. The broader NSE Nifty also declined, shedding 265.80 points to close at 24,008.67. The fall was triggered by renewed conflict between the two South Asian neighbours, alongside global market weakness and a stronger US dollar.
Foreign funds turn net sellers
Foreign portfolio investors (FPIs) were key drivers behind the market selloff, exiting Indian equities with a net outflow of ₹3,799 crore ($455 million), according to data from the National Securities Depository Limited (NSDL) and BSE. This marked the first net sell-off by FPIs in Indian markets since mid-April, interrupting a three-week period of steady inflows.
Between April 15 and May 9, foreign investors had injected around ₹50,000 crore ($6 billion) into Indian stocks, reflecting growing optimism about the country’s economic prospects. However, the sudden flare-up in regional tensions prompted a rapid shift to risk-off strategies.
Ajit Mishra, a market strategist at Religare Broking, said the sharp rise in India’s Volatility Index (VIX)—up 17% in the past week—reflected “significantly heightened market anxiety” as investors weighed the risks of prolonged military engagement.
Market breadth turns negative
Among the Sensex’s 30 constituent stocks, 26 ended the day in the red. Financial and energy sectors bore the brunt of the decline, with ICICI Bank losing 3.09%, PowerGrid down 2.61%, and Reliance Industries slipping 1.84%.
Some resilience was seen in select heavyweight stocks, notably Titan Company, which rose 4.25%, and Tata Motors, up 3.86%. State Bank of India and Larsen & Toubro also posted modest gains.
Broader indices offered mixed signals. The Nifty Midcap 100 closed largely flat after an initial sharp drop, while the Smallcap 100 declined 0.61%. Among sectoral indices, real estate, financial services, and banking stocks were the worst performers, each falling over 1%.
Conversely, defence-linked stocks attracted strong buying interest. Bharat Dynamics surged 5.3%, Bharat Electronics gained nearly 3%, and Hindustan Aeronautics rose 1.8%. Drone technology firm Droneacharya Aerial Innovations hit its upper circuit, closing 5% higher.
Escalation of regional conflict unnerves investors
The volatility followed reports that Pakistan had launched multiple missiles targeting Indian cities, in retaliation for India’s precision strikes on alleged terror infrastructure in Pakistan-administered Kashmir. Indian air defence systems reportedly intercepted all incoming missiles, preventing casualties, but tensions remain high.
In response, several Indian states implemented emergency protocols, including the suspension of civilian air operations at over 30 airports. Loud explosions were reported in Jammu and Kashmir, with local blackouts enforced in parts of Punjab and northern India.
Analysts say investor sentiment is being shaped by the unpredictability of further military action. “Geopolitical tensions have moved beyond market expectations,” said Avinash Gorakshkar of Profitmart Securities. “The lack of clarity over the situation is pushing investors away from equities and into safer assets.”
Currency and global factors add to pressure
The Indian rupee remained volatile, trading in a narrow band between 85.90 and 85.35 against the US dollar. The appreciation of the dollar—back above the psychologically significant 100 mark in the Dollar Index—added to concerns over capital outflows from emerging markets.
Global headwinds also weighed on sentiment. Key Asian indices, including Hong Kong’s Hang Seng and China’s Shanghai Composite, ended in negative territory amid weak cues and rising crude oil prices, which have rebounded to around $75 per barrel.
The uncertainty surrounding trade negotiations between India and the United States also contributed to investor caution. While officials on both sides have hinted at progress, no formal agreement has been announced, leaving market participants concerned about future tariff regimes.
Context: Historical resilience of Indian equities
Despite the recent downturn, historical patterns suggest Indian stock markets tend to recover relatively quickly following geopolitical shocks. According to Seema Srivastava of SMC Global Securities, prior conflicts between India and Pakistan have typically resulted in corrections of between 5% and 10%, followed by swift recoveries.
However, analysts caution that current circumstances may be more prolonged than previous flare-ups. “We are not seeing the market crash, but the mood is clearly risk-averse,” said Anshul Jain of Lakshmishree Investment and Securities. “Until there is resolution or clarity on multiple fronts—from the border situation to global macroeconomic factors—volatility will remain high.”
Looking ahead: Technical levels to watch
Market watchers suggest that key support levels for the Nifty index lie between 23,500 and 23,800. A breach of these could trigger further downside. On the upside, resistance is seen around 24,600, a level that would need to be decisively surpassed for any sustained recovery.
“Until we have a clearer geopolitical outlook, investors are advised to focus on short-term trades and avoid taking aggressive positions,” said Rajesh Bhosale, technical analyst at Angel One.
For now, traders and institutional investors alike remain on high alert, with equity markets highly sensitive to any fresh developments in the ongoing India-Pakistan standoff.
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