The Indian stock markets are once again facing a geopolitical test, with tensions flaring between India and Pakistan following a tragic terrorist incident in Pahalgam. Earlier this year, the markets had basked in optimism, buoyed by cooling global trade tensions, a stabilizing rupee, and a surge in foreign institutional investor (FII) activity. However, recent developments have thrown a wrench into that momentum, causing a sharp downturn.
Following a recovery from corrections sparked by valuation concerns and unpredictable U.S. policies under the Trump administration, the latest headlines around the Pahalgam attack have led to significant market declines. The Nifty has tumbled below the 24,000 mark, while the Sensex saw an intraday drop exceeding 850 points on Friday. Amplifying investor anxiety is Pakistan’s reaction to India’s firm response, such as the suspension of the Indus Water Treaty, raising the specter of military confrontation amid reports of cross-border firing. Understandably, investors are treading cautiously, opting against long positions as they brace for a volatile weekend.
Yet, Here’s the Twist: History Says, “Stay Calm and Carry On”
Despite heightened border tensions, a study by Anand Rathi Research titled India–Pakistan Conflict: Possible Impact on Indian Equities suggests that Indian markets, particularly the Nifty 50, have historically shown impressive resilience. Previous incidents, including the Kargil War (1999), the Uri attack (2016), and the Balakot airstrike (2019), triggered only minor corrections ranging from 1% to 2%. Analysts now predict that even if tensions escalate, the Nifty’s correction should be contained within a 5–10% range — and any dips will likely be short-lived. Investors are therefore encouraged to resist knee-jerk reactions, stick to strategic allocations, and view pullbacks as potential buying opportunities rather than cause for panic.
A Walk Through the Historical Lens
Past India–Pakistan standoffs have consistently shown that the Indian equity markets maintain a stiff upper lip. During major events like the Kargil War and the Balakot strikes, market corrections remained modest between 0.8% and 2.1%. The only notable exception was the aftermath of the 2001 Parliament attack, but even then, the ~13.9% fall was largely due to the global tech crash and a ~30% drop in the U.S. S&P 500, rather than the conflict itself.
In broader global context, average equity market corrections during conflicts such as the Russia–Ukraine war or Middle Eastern unrest have hovered around 7%, with a median fall of about 3.2%. Comparatively, India’s markets have proven to be relatively more resilient during episodes of regional tension.
What’s Expected in 2025?
Should the current tension escalate into a limited conflict, analysts foresee a correction in the Nifty 50 of about 5–10% at most. Strong domestic macroeconomic fundamentals, prudent global risk assessments, and India’s historical performance during conflicts are key factors supporting this optimistic view. Unlike major global wars that have triggered prolonged bear markets — remember, Russian equities fell a whopping -33.4% post the Ukraine conflict — India–Pakistan tensions generally lead to short-term wobbles, not full-blown market crashes.
Investor Playbook: Keep Calm, Stay Invested
The smart money advice? Stick to your strategic asset allocation — the 65:35:20 model (65% equity, 35% debt, 20% liquidity) remains a solid anchor. Investors with underweight equity allocations might even seize the opportunity to buy quality stocks during dips. Above all, avoid panic selling; focus on the long-term health of your portfolio, and remember that volatility often breeds opportunity for the disciplined investor.
What the Experts Are Saying
G Chokkalingam, founder and head of research at Equinomics Research, acknowledged that heightened tensions may jolt the markets and cause further short-term declines. However, he emphasized that a full-blown war is highly unlikely, suggesting that investors stay cautious but not fearful. Chokkalingam also noted potential opportunities in the banking sector amid this backdrop.
Similarly, U R Bhat, co-founder and director of Alphaniti Fintech, stressed that the uncertainty surrounding India’s response is making investors understandably nervous. Many are adopting a conservative stance in their portfolios. Nevertheless, based on historical behavior, both experts agree: while short-term bumps are inevitable, the market is poised for eventual recovery, offering a fertile ground for long-term investors.
