The Indian stock market witnessed volatile trade on Wednesday following the precise military strikes by Indian armed forces on terrorist infrastructure in Pakistan and Pakistan-occupied Kashmir (PoK) under Operation Sindoor. Benchmark indices Sensex and Nifty experienced a steep decline in early trading following the news, indicating investor apprehension over rising geopolitical tensions. But in a quick reversal, both indices bounced back in a hour, demonstrating the market's fundamental strength.

Operation Sindoor: How Will The India-Pakistan Tension Impact The Indian Stock Market

Experts contend that the current situation may not result in a sustained market downturn, despite the fact that such cross-border developments usually cause investors to feel risk-averse. This measured reaction is due to the fact that Operation Sindoor did not target Pakistani military or strategic installations, indicating a focused and non-escalatory stance.

"The recent military strikes involving India have understandably raised investor concerns about geopolitical stability in the region," said Anirudh Garg, Partner & Fund Manager at Invasset PMS.
"Historically, Indian stock markets tend to react sharply in the short term to such events due to heightened uncertainty and risk-off sentiment. However, past patterns also show that markets often recover swiftly once clarity emerges and broader macroeconomic fundamentals remain intact."

Garg pointed out that while sectors like defense and oil & gas may see temporary movements in response to geopolitical developments, long-term investors usually remain focused on structural indicators such as earnings, policy stability, and economic growth.

The India-UK Free Trade Agreement (FTA), which is almost finalized, is another factor boosting investor confidence. In addition to strengthening India's international trade presence in the face of global supply chain realignments, this trade agreement is anticipated to significantly benefit Indian exporters in industries like information technology, textiles, and pharmaceuticals.

"Together, these two developments present a mixed short-term outlook for the markets. While the military escalation injects volatility, the impending FTA signals policy stability and global integration. For long-term investors, it is essential to differentiate between tactical disruptions and structural shifts," Garg added. "India’s positioning in global trade and its relative macroeconomic resilience may continue to attract foreign capital, even amid geopolitical headwinds."

Commenting on the current scenario, Gaurav Garg of Lemonn Markets Desk emphasized the size of recent FII inflows, which have exceeded ₹32,000 crore and indicate a vote of confidence in India's economic future despite escalating tensions with Pakistan.

"Despite rising geopolitical tensions, Indian equity markets have demonstrated resilience, supported by robust FII inflows exceeding ₹32,000 crore," Gaurav Garg said. "Moody’s has downplayed the potential economic fallout, citing India’s minimal trade exposure to the neighbouring country—less than 0.5% of total exports."

Additionally, he issued a warning that a protracted war might put financial strain on the government by raising defense spending, which could make its attempts at fiscal consolidation more difficult.

Nevertheless, macroeconomic indicators continue to support the generally positive investor sentiment. India's GDP is expected to expand by more than 6%, and company profits in several important industries have either reached or surpassed forecasts.

"Markets are expected to remain range-bound in the near term, guided by geopolitical developments, FII activity, corporate earnings, US market trends, and macroeconomic data. Key technical levels continue to hold, and sustained FII inflows may provide downside support. Any escalation in border tensions may trigger a short-term correction, but such dips could offer buying opportunities as markets typically rebound once uncertainty fades," Gaurav Garg added.