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India Strikes Back
On May 7, 2025, India launched Operation Sindoor, carrying out precision airstrikes on nine terror sites in Pakistan and Pakistan-occupied Kashmir. The move came in retaliation for the April 22 Pahalgam attack, which killed 26 people—25 Indian citizens and one Nepali national.
The Indian Ministry of Defence called the operation “focused, measured, and non-escalatory,” specifically avoiding Pakistani military targets to prevent further escalation.
As markets absorb the news, volatility has spiked. However, early losses have been partially pared back. Shishir Asthana examines the likely impact on Indian financial markets in his latest piece.
Learning from the Past
Historical precedents offer insights. During the 1999 Kargil conflict, the BSE Sensex fell about 5% but recovered within months. Similarly, after the 2019 Balakot airstrikes, the Sensex dipped 0.7% on the day, followed by a 7% rally over the next month.
The rupee, under pressure, opened 19 paise weaker—mirroring the 1.5% depreciation seen in 2019. If the situation escalates—such as trade or energy route disruptions—volatility may deepen. But a contained conflict could allow markets to stabilise, as history has shown.
Sectors Feeling the Heat
The aviation and tourism industries are immediate casualties. Airlines like Air India, IndiGo, and SpiceJet have cancelled flights to northern cities. Jammu & Kashmir’s already struggling tourism sector faces further revenue losses.
In 2019, domestic air travel bookings to the north dropped 10%—a trend likely to repeat.
However, defence stocks are gaining ground. Bharat Electronics, Hindustan Aeronautics, and Paras Defence have surged, echoing 2019 trends when defence stocks rose 15–20% post-Balakot due to rising government spend.
Energy markets are also jittery. India’s suspension of the Indus Waters Treaty may affect agriculture and hydropower, as seen post-Uri attack in 2016. Oil prices, historically sensitive to regional instability, rose 5% during the 2019 crisis and may spike again—impacting India’s import bill and forcing the RBI to reconsider policy easing.
Trade Diversification: A Silver Lining
Amidst geopolitical tensions, a major positive has emerged—the finalisation of the India-UK Free Trade Agreement (FTA). Covering $21 billion in bilateral trade, the FTA promises lower tariffs, increased exports in textiles, pharma, and IT, and fresh UK investments in infrastructure and green energy.
Abhijit Kumar Dutta’s detailed analysis explores the FTA’s implications. Trade experts project a $50 billion GDP boost for India by 2030. The agreement mirrors the success of the 2010 India-Japan FTA, which significantly boosted auto exports.
Beyond exports, the FTA strengthens India’s global trade position, offering insulation from regional turbulence—just as diverse trade ties helped stabilise the economy during the Kargil War.
Investor Outlook: Caution with Opportunity
So, what now?
Operation Sindoor introduces near-term risk. As in 2019, foreign institutional investors may cut exposure—FIIs sold $300 million post-Balakot. However, domestic institutional investors remain buyers, showing faith in India’s 6.5%–7% growth forecast for 2025.
Retail investors should stay calm. Avoid panic selling. Focus on large-cap, resilient stocks. Gold and government securities remain safe bets—gold surged 8% during the 2019 crisis.
Meanwhile, the India-UK FTA supports a positive long-term outlook for export-oriented sectors like pharma and IT, which now enjoy improved access to the UK market.
India’s economy has repeatedly proven its resilience during geopolitical crises. GDP grew 6.1% after Kargil and 6.8% post-Balakot. The eventual impact of Operation Sindoor hinges on how quickly tensions ease. If calm is restored swiftly, investor sentiment should rebound, with the UK FTA providing a buffer.
But if the conflict drags on, it could strain fiscal resources, delay RBI rate cuts, trigger inflation, and put pressure on small- and mid-cap stocks—just as seen during Kargil’s peak uncertainty when these indices dropped 10%.