Markets expect an escalation in India – Pakistan tensions following the attack on civilians in Pahalgam, but a full-fledged war between the neighbouring countries is ruled out at this stage, suggest analysts.
The markets, according to U R Bhat, co-founder & director, Alphaniti Fintech, are quite nervous after the developments in Pahalgam. The markets, he said, had gone up sharply from their recent fall that was triggered by US tariff fears. Investors, Bhat believes, are booking profit now and preferring to wait on the sidelines till there is clarity on the India – Pakistan geopolitical situation.
“Investors are nervous due to the developing geopolitical situation with Pakistan after the Pahalgam attack. Markets expect an escalation in the tensions between India and Pakistan, and there is no doubt about this. Now, how and how fast will India retaliate to the developments is anybody’s guess. Given this, investors are keeping their positions light,” Bhat said.
In the aftermath of the Pahalgam attack that left 26 dead earlier this week, India has launched a series of retaliatory measures targeting Pakistan’s diplomatic and strategic interests, which includes expulsion of Pakistani military attachés, closing the Attari border, and suspending the Indus Waters Treaty.
Pakistan Army troops, according to reports, opened fire at multiple locations along the Line of Control (LoC) in Jammu and Kashmir on Thursday night.
At the bourses, meanwhile, the Sensex lost over 800 points in intraday deals to hit a low of 78,797 levels on Friday. From a level of 78,017.19 on March 25, 2025, it had tanked 6,592 points, or 8.4 per cent, to 71,425 on April 7, 2025 on tariff fears.
The 90-day push-back on tariffs by US president Donald Trump triggered a rally in the markets and took the Sensex 8,829.55 points, or 12.4 per cent higher to 80,254.55 levels by Wednesday, April 23.
Lessons from history
Historically, equity markets have generally seen a knee-jerk reaction on account of geopolitical risks in the near-term, but have found their feet soon.
The Kargil confrontation between India and Pakistan, for instance, saw a sharp market correction in mid-1999. However, the markets rallied sharply as realisation dwelled that the conflict would not last long.
The recent developments between India and Pakistan, said G Chokkalingam, founder and head of research at Equinomics Research, are likely to keep the markets on the edge with chances of a further fall from here on amid volatility.
“While investors should remain cautious and monitor the developments, there is not much need to panic at this stage. A full-fledged war is ruled out, but tensions, the markets feel, between India and Pakistan will rise. The markets should be able to live with that and will eventually bounce back, as seen in the past as well. As an investment strategy, investors should buy the dips from a long-term perspective. I am bullish on the banking sector,” Chokkalingam said.
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