The ongoing tensions between India and Pakistan, sparked by the tragic terrorist attack in Pahalgam, have created a volatile environment for investors. While there is a heightened possibility of military confrontation and uncertainty surrounding the government’s response—such as the suspension of the Indus Water Treaty—historical trends suggest that Indian stock markets may exhibit resilience during such conflicts.
Current Market Scenario Amid Rising Tensions
The Indian stock market has recently faced challenges, including a decline in the Nifty and Sensex indices, with the Nifty dropping below the 24,000 mark and the Sensex shedding over 850 points in intraday trade. The market has been cautious in the wake of rising cross-border tensions and concerns about the potential for military escalation with Pakistan.
Despite these challenges, Anand Rathi Research has pointed out that the Indian equity markets have historically shown resilience during geopolitical crises, such as the Kargil War (1999), Uri Attack (2016), and Pulwama-Balakot Strike (2019). The market corrections during these times were contained within a narrow range of 0.8% to 2.1%.
Impact of Past India-Pakistan Conflicts on Stock Markets
In previous conflicts, the Nifty 50 experienced only minor corrections, despite heightened tensions. The 2001 Parliament attack was the exception, where a significant drop of approximately 13.9% occurred, but this was largely influenced by the global tech meltdown and the broader downturn in the US market, rather than solely by the India-Pakistan standoff.
When compared to other global conflicts, such as the Russia-Ukraine war or Israel-Gaza conflicts, the average correction in equity markets was around 7%, with a median fall of 3.2%. In contrast, India-Pakistan tensions have typically resulted in short-term dips followed by rapid recoveries.
What to Expect in 2025
If the current tensions between India and Pakistan escalate into a limited conflict, analysts predict that the Nifty 50 could experience a correction of around 5–10%, but such a dip is likely to be short-lived. Given India’s relatively strong domestic macroeconomic fundamentals and the historical behavior of the markets during conflicts, there is a belief that the impact on the Indian stock market will remain contained.
Advice for Investors
In light of these developments, investors are advised to stay disciplined in their approach. Investors following the 65:35:20 strategic asset allocation model (65% equity, 35% debt, 20% liquidity) are encouraged to maintain their positions. Additionally, investors with an equity allocation gap may consider buying into dips rather than resorting to panic selling.
It’s important to focus on the long-term fundamentals of the market rather than short-term volatility. Historical trends show that India’s stock market has shown remarkable resilience during past conflicts, and the current situation is expected to follow a similar pattern of short-term corrections followed by a quick recovery.
Experts Weigh In on the Situation
Despite concerns about the evolving situation, experts like G Chokkalingam, founder and research head of Equinomics Research, have expressed optimism about the long-term investment outlook. While the current tensions may cause temporary market instability, Chokkalingam believes a full-scale war is unlikely and urges investors to stay calm.
Similarly, U R Bhat, co-founder and director of Alphaniti Fintech, has advised investors to adopt a cautious approach, keeping their positions conservative. While there are uncertainties surrounding the escalation of tensions, Bhat believes that India’s market will recover once the situation stabilizes.
Conclusion: Stay Calm and Stick to Your Strategy
In summary, while the geopolitical situation between India and Pakistan remains tense, historical data suggests that Indian markets have tended to remain resilient during such conflicts. Investors are encouraged to avoid panic selling and instead focus on the long-term growth potential of the Indian economy. By maintaining disciplined portfolios and considering buying opportunities during market dips, investors can position themselves for success in the long run.
