India-Pakistan Conflict: How it could impact Indian stock markets

The Indian stock market may experience heightened volatility over the next few days as geopolitical tensions between India and Pakistan escalate following a terrorist attack in Kashmir. According to market experts, cautious sentiment and profit booking are likely to keep investors on edge in the near term.

Despite the tensions, the domestic equity benchmarks — Sensex and Nifty 50 — posted weekly gains of around 0.80%, closing at 79,212.53 and 24,039.35 respectively. However, market volatility has edged higher, with India VIX rising 11%, partially reversing last week's 23% decline.

"After a positive start driven by favorable global cues, Indian indices fell sharply due to profit booking amid escalating India-Pakistan tensions. Nifty closed down 207 points, ending the day at 24,039, a 0.9% loss," said Siddhartha Khemka, Head of Research, Wealth Management, at Motilal Oswal Financial Services.

While most sectors faced selling pressure, the IT sector was an exception. Nifty IT rose by 0.7%, buoyed by a rally in the tech-heavy US Nasdaq. Meanwhile, hotel and aviation stocks witnessed declines, anticipating a slump in tourism following the attacks.

Historical Perspective and Expert Insights

Vinod Nair of Geojit Financial Services pointed out that historically, India’s markets have demonstrated strong resilience during geopolitical events. "Foreign investors are expected to adopt a 'wait and watch' approach. Long-term investors should view any market dips as an opportunity to accumulate quality stocks," he added.

According to a report by Anand Rathi, Indian markets have typically seen only mild corrections during times of heightened tension with Pakistan. Except for the 2001 Parliament attack — when global factors like the S&P 500’s ~30% crash played a bigger role — market corrections during conflicts have generally been modest, averaging 7% with a median of 3%.

The report further noted that, even in case of a substantial escalation, Nifty 50 is unlikely to correct beyond 5–10%. Investors following the 65:35:20 asset allocation strategy are advised to stick to their plans. Those with gaps in their equity portfolios are encouraged to invest now to align with strategic allocations.

Key Technical Levels to Watch

Rajesh Bhosale, Equity Technical Analyst at Angel One, observed that after touching new highs earlier in the week, Nifty suffered a sharp sell-off on Friday but managed to close the week with a modest 0.79% gain.

"Nifty has confirmed a bullish breakout by surpassing the February–March swing highs. The support zone of 23,800–23,900 held strong on Friday. However, if tensions worsen and this level is breached, the index could correct further towards 23,500–23,300," Bhosale warned.

On the upside, immediate resistance is pegged at 24,250–24,350. A breakout above this range would signal the continuation of the broader uptrend. Bhosale also advised caution in the midcap segment, which is facing resistance near its 200-day simple moving average (DSMA).

Investors should stay alert for any fresh developments between India and Pakistan over the weekend, as Monday’s market opening will be closely tied to the geopolitical situation.