Indian equity markets showed remarkable resilience on May 7, 2025, after news of Operation Sindoor — India’s carefully targeted strikes against terrorist camps in Pakistan and Pakistan-occupied Kashmir (PoK). The BSE Sensex, which opened as much as 692 points lower, quickly erased its losses and rallied back into positive territory. By late morning, the Sensex was trading around 80,620 (nearly flat for the day) and the Nifty50 was hovering near 24,388, in line with analysts’ expectations of only a shallow, short-lived reaction. The Nifty MidCap and SmallCap indices even climbed 1–1.4%, reflecting broad buying. (By contrast, Pakistan’s KSE-100 plunged ~5.5% on Wednesday morning, underscoring the divergent economic outlooks of the two nations.)
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Analysts stress that Operation Sindoor was conducted in a “focused, measured and non-escalatory” manner, striking only terror infrastructure and avoiding military targets or civilian areas. The Ministry of Defence emphasised that India demonstrated “considerable restraint” and did not hit any Pakistani military sites. Markets had largely discounted the strikes, viewing them as a known response to the Pahalgam terror attack on April 22. Early on Wednesday, Dalal Street’s cautious jitters gave way to buying: by 9:30 am, the Sensex had rebounded +143 points (+0.18%) and the Nifty was up about +57 points (+0.23%). Traders noted the steep intraday recovery: the Sensex traded at 80,784, up from a pre-open low of ~80,000.
Three key factors underpinned the market’s placid response:
- Non-escalatory strikes: The precision and restraint of Operation Sindoor reassured investors. Experts note that “the market had already discounted the Indian strike,” and its limited scope helped maintain confidence. As one strategist put it, unless hostilities balloon into a full-scale war or trigger sanctions, stock corrections should remain modest.
- Positive global cues: A flurry of other news brightened sentiment. Reports of a pending US-China trade summit and fresh Chinese monetary easing boosted risk appetite. Critically, late Tuesday, India announced the successful signing of a historic India–UK Free Trade Agreement, a diplomatic and economic coup that promises to deepen trade and investment ties. The UK FTA, expected to contribute on the order of billions in bilateral trade, provided a distinct bullish offset to geopolitical worries. Market analysts noted that global futures were buoyant following these developments, even as domestic markets assessed the Sindoor news.
- Surging FII inflows: Foreign investors have been plowing money into Indian equities for weeks. In the two weeks prior to Wednesday’s trade, FIIs injected roughly ₹44,000–45,000 crore into Indian stocks. This steady flood of foreign capital has provided strong technical support. Geojit’s Dr. V.K. Vijayakumar observes that sustained FII buying (“Rs 43,940 crore in 14 days” and counting) is the main catalyst keeping markets firm. Equally, domestic mutual funds sit on record cash and continue to deploy capital. As one report notes, “cash-rich mutual funds and steady FII buying are buffering our markets from short-term shocks.”.
Historical Perspective: Past India–Pakistan Crises
Operation Sindoor recalls several past Indo-Pak military flashpoints. History shows that Indian markets typically shrug off even intense tensions after an initial wobble. Data from Bajaj Finserv and other analyses reveal that during five major conflict episodes since 1999 (Kargil 1999, Parliament attack 2001, Mumbai/26/11 2008, Uri strikes 2016, Pulwama/Balakot 2019), the Nifty’s average drawdown was only about 5.3% – far short of a bear market – and long-term returns were positive in almost all cases. In fact, except for the anomalous 2001 Parliament attack (which coincided with global market turmoil), every other high-profile incident was followed by a market recovery. As one fund manager notes, “Except for the 2001 Parliament attack, all other incidents led to positive market returns over the medium to long term.”
Key examples illustrate the pattern:
- Kargil War (May–July 1999) – The market dipped modestly (~0.8% over the conflict) but then exploded higher. One analysis shows the Nifty was up +16.5% one month after Kargil, and a remarkable +31.6% six months after. By one year later, the Sensex had surged over 60% from pre-Kargil levels.
- Parliament Attack (Dec 2001) – This remains the outlier. Nifty fell roughly 0.8% a month after the strike and was slightly lower after a year, reflecting concurrent global risks (it occurred weeks after 9/11).
- Mumbai 26/11 Attacks (Nov 2008) – Again, a quick dip was followed by a historic rally. One study notes Nifty rose by +54% in six months and by over 80% in a year after the shock, as the global financial crisis (which coincided with Mumbai) passed.
- Uri Surgical Strikes (Sept 2016) – The market barely flinched, with only a small (~1.2%) decline followed by normal gains.
- Pulwama Terror Attack & Balakot (Feb–Mar 2019) – Here too, the Nifty fell just ~3% intra-week but recovered strongly; it was already up about +6.3% one month after and had climbed roughly +15% by year-end.
In short, “Indian markets demonstrate strong resilience once clarity returns”, analysts say. Often, an initial 3–5% dip is all that transpires, after which fundamentals reassert themselves. The Financial Express notes: “After the Kargil War, the Sensex surged 63% within a year. Post-Parliament attack, it rose 20%. Following Mumbai, it gained 60% within 12 months, and after Balakot, it climbed 15% by year-end”. As one strategist summarizes, in a peaceful interval, “Indo-Pak tensions have not had a lasting negative impact. Investors should focus on fundamentals, not fear.”
Sector and Stock Movers
Defence stocks naturally spiked on the news, reflecting their ties to security concerns. Shares of Mazagon Dock Shipbuilders jumped as much as +3.7%, Paras Defence +3%, Hindustan Aeronautics (HAL) +1.8%, Cochin Shipyard +2%, Bharat Dynamics +1.7%, and Data Patterns +1.3%. These gains came on top of an existing month-long rally in military-related firms. By contrast, sectors with little direct link to the conflict were mixed: energy and consumer stocks drifted, while IT and realty were choppy.
Among broader market names, Tata Motors led the gains (a +4% rise) as investors cheered its planned demerger into separate passenger and commercial vehicle companies. One97 Communications (Paytm) shares also popped ~3.3%, rebounding after Tuesday’s dip as results showed narrowing losses despite regulatory headwinds. Retail heavyweight Avenue Supermarts (DMart) was essentially flat, mirroring the market’s calm, while other largecaps saw a mix of earnings-driven moves. For example, Piramal Enterprises jumped over 4% on strong revenue growth, and specialty chemical maker Aarti Drugs surged ~6% on robust quarterly results. On the downside, a few names gave ground: Sun Pharma fell ~1.5% (profit-taking after gains) and Bank of Baroda was off about 7% on margin concerns as per traders. Overall, the gains in defence, auto, and financials outpaced losses, helping benchmark indices finish slightly higher.
While Bank Nifty traded largely flat on Wednesday, it reflected similar underlying trends. Traders noted strong support near 24,171 on Nifty – underscoring the view that dips above those levels are buying points. In general, mid- and small-cap stocks outperformed, as domestic retail flows rotated into more cyclicals and value names amid the calm.
Buying the Dip: Investor Mindset
What explains this equanimity? Analysts emphasize that most investors have already ‘priced in’ the strikes. The fact that no civilians or military sites were hit keeps this episode in the realm of political signal rather than economic shock. In effect, it is seen as old news for markets. As Geojit’s Vijayakumar put it, the market is unlikely to be rattled by any immediate retaliation “since that was known and discounted by the market”.
Moreover, India’s macroeconomic picture remains strong. GDP growth is among the highest globally, inflation is well under control, and foreign exchange reserves are ample. Trade between India and Pakistan is negligible (<0.5% of exports), so cross-border turmoil has little direct effect on trade flows. In fact, a recent Moody’s report reaffirmed India’s economic strength even as it cautioned that a sustained war could pressure fiscal spending. For now, analysts say the upside, such as faster exports under the new UK FTA and continued capital inflows, outweighs the risks.
Put simply, market veterans view sharp sell-offs on geopolitical scares as “buying opportunities”. Historically, each dip has been followed by rallies as investors add quality names at lower prices. Anand Rathi and others note that even under worst-case escalation, a 5–10% correction is a reasonable upper bound. Thus, despite the headlines, the broad trend has remained intact. One strategist advises traders to be cautious only if Nifty falls below ~24,171 support; otherwise, dips in the 24,400s are chances to top up positions.
This mindset is evident in the flows: while nervous short-term traders sold initially, both domestic and foreign funds kept buying. Over 14 trading days around this period, FIIs added roughly ₹44,000–45,000 crore to the market, and mutual funds chipped in from the sidelines. Domestic mutual fund managers explicitly cite “strong fundamentals” and the UK trade deal as reasons not to panic.
In summary, Operation Sindoor passed with only a blip for Dalal Street. The market’s reaction — a quick rebound and small net gain — is consistent with past patterns of resilience. This episode has reinforced the message that Indian equities remain tied mainly to economic fundamentals, not headline geopolitics. As one market expert puts it, “Present indicators suggest this represents a buying opportunity rather than a signal to sell”. With the India–UK FTA on the horizon and foreign interest unabated, many investors are betting that any dip will soon be bought up by bulls focusing on the long game.
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