Operation Sindoor, a focused retaliation against terror hubs in Pakistan and Pakistan-occupied Kashmir (PoK), raised tensions across the geopolitical landscape. Yet, despite the potential for volatility, the Indian stock market, particularly Dalal Street, seemed remarkably unfazed by the developments. Investors on Dalal Street were not rushing to the exits, and there was no sign of panic or a massive sell-off — instead, markets saw brief volatility, which was eventually absorbed. For many retail investors, this calm amid rising military tensions may have seemed unusual, prompting the question: shouldn’t a military flare-up between nuclear-armed neighbors like India and Pakistan shake investor confidence?
Historically, the stock market's response to Indo-Pakistani tensions has been counterintuitive. While markets are generally known to dislike uncertainty, the Indian stock market has demonstrated resilience time and again, defying expectations during such geopolitical flashpoints. From the Kargil War in 1999 to the Balakot air strikes in 2019, and even the aftermath of the 26/11 Mumbai attacks, the stock market has rebounded with surprising vigor. For instance, after the 1999 Kargil conflict, the Nifty surged 16.5% in the month following the hostilities, and it gained over 29% within the next year. Similarly, after the 26/11 attacks, the market rallied by 82% over the next 12 months. The only major exception to this trend was the aftermath of the 2001 Parliament attack, where the market experienced a temporary downturn.
These instances suggest that, while market reactions to geopolitical tensions may initially cause some volatility, history has shown that such moments are often followed by recoveries that benefit long-term investors. The concern for many retail investors is whether the current geopolitical situation will result in a long-lasting negative impact on the markets. But experts argue that the market is unlikely to be significantly affected by Operation Sindoor, as the event was largely anticipated and already priced in by the market. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit, pointed out that the operation was “known and discounted” by the markets, and emphasized the “focused and non-escalatory nature” of the military action, which brought comfort to investors. The fact that India targeted specific terror hubs, rather than military installations, demonstrated restraint, which has been interpreted as a strategic move to avoid further escalation.
Another factor supporting the market's resilience is the continuous inflow of foreign institutional investment (FII). In the last 14 trading sessions alone, FIIs have invested approximately Rs 43,940 crore in Indian equities. These foreign funds are less likely to react to short-term geopolitical developments and more focused on India’s macroeconomic story, which includes strong growth prospects, a stable policy environment, and a reform-minded government. Abhishek Jaiswal, Fund Manager at Finavenue, noted that global investors are more inclined to bet on India’s growth trajectory rather than being swayed by temporary geopolitical tensions. This consistent FII inflow has been a significant support for Indian markets, helping them remain buoyant despite the current tensions with Pakistan.
Retail investors who may be feeling anxious in light of the recent geopolitical developments are advised to refrain from making hasty decisions. The instinct during such times is often to sell off positions or halt Systematic Investment Plans (SIPs). However, historical data and expert opinions suggest that this knee-jerk reaction often leads to regret. Panic selling has rarely rewarded long-term investors, especially during short-lived geopolitical frictions. In fact, it is precisely during such dips that disciplined, patient investors have found the best entry points.
For those with a long-term investment horizon, maintaining a calm and steady approach is key. The fundamental factors supporting the market — such as corporate earnings growth, macroeconomic stability, and liquidity flows — remain intact. Unless there is a significant escalation, such as a full-scale war (which analysts deem unlikely), the broader economic fundamentals are unlikely to be significantly impacted. As a result, this is not the time for investors to abandon their investment strategy, but rather to stay focused on their long-term goals.
Instead of exiting the market, analysts recommend that investors focus on large-cap stocks, which are currently attracting strong interest from foreign institutional investors. Sectors like financial services, infrastructure, and capital goods are expected to perform well in the long term, driven by solid economic fundamentals and government policy support. Large-cap stocks in these sectors are seen as safer bets during uncertain times, as they have the financial resilience to weather any short-term volatility.
Moreover, for those investing via SIPs, it is important to recognize that these moments of market uncertainty can actually work in favor of SIP investors. When the market dips, SIP investors acquire more units at lower prices, a strategy known as rupee cost averaging. This approach helps to enhance long-term returns, as the average cost per unit decreases when markets recover. In fact, by staying invested through the volatility, investors will be well-positioned to benefit from the inevitable recovery, which has historically followed such geopolitical shocks.
Additionally, certain sectors are directly impacted by the ongoing situation. Defence stocks, for example, have rallied post-Operation Sindoor, with expectations of increased government spending on military equipment. Companies like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Bharat Dynamics Limited are poised to benefit from increased defense orders in the long term. Conversely, sectors like tourism and aviation may experience short-term challenges, particularly in regions like Jammu and Kashmir, where security concerns could affect travel and tourism.
Ultimately, the key takeaway for retail investors is to remain informed rather than influenced by external noise. While geopolitical developments are important, they should not drive core investment decisions. The Indian market is largely driven by domestic growth factors, policy continuity, and strong corporate fundamentals. By focusing on these long-term drivers of growth, investors can weather short-term volatility and continue to benefit from India’s broader economic trajectory.
