From Kargil to Operation Sindoor: How Indian markets have historically reacted after military strikes

Indian share market witnessed muted trade on Wednesday, with benchmark indices BSE Sensex and NSE Nifty moving in a narrow range, after India early today carried out Operation Sindoor hitting terrorist camps in Pakistan and Pakistan-occupied Kashmir (PoK). Caution prevailed in the market as investors assessed the current situation and its implication on the economy. Focus also remained on the Federal Reserve policy announcement later in the evening today as how the U.S. central bank plans to address the effects of President Donald Trump’s trade tariff policies and other changes on the real economy.

The BSE Sensex opened 692 points lower at 79,949 today, after ending down by 156 points at 80,641 level in the previous session. The benchmark index, however, soon recovered losses and was hovering around baseline, swinging between gains and losses.

In a similar trend, the broader NSE Nifty belled the day at 24,233, down 146 points from the previous closing level of 24,380. At the time of reporting, the Nifty50 was trading lower by 5 points at 24,375, paring opening losses.   

According to analysts, the market is unlikely to be impacted by the retaliatory strike by India since that was known and discounted by the market, as indicated by quick recovery in Indian equities after an initial dip in early trade. Investors often look past short-term geopolitical events, focusing more on the broader economic outlook, strong financial inflows, and robust macroeconomic fundamentals.

"What stands out in Operation Sindoor from the market perspective is its focused and non-escalatory nature. We have to wait and watch how the enemy reacts to this precision strikes by India,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

“The market is unlikely to be impacted by the retaliatory strike by India since that was known and discounted by the market,” he said.

Will Indo-Pak tension impact Indian share market?

Though it is difficult to predict the market direction, however, historical data suggests that the Indian stock market has generally responded with resilience to serious geopolitical events. The past two surgical strikes since 2016—Uri and Balakot—had a limited impact on the domestic markets. Except for the Parliament attack in 2001, all other incidents studied have led to positive market returns over the medium to long term.

“It’s important to recognise that the likelihood of a full-scale war remains low. As long as such escalation is avoided, India’s economic growth trajectory is unlikely to face any major setbacks,” said Abhishek Jaiswal, Fund Manager at Finavenue. 

While the initial reaction to cross-border strikes may be cautious, markets tend to recover and even thrive thereafter—reinforcing the idea that political stability, strategic decisiveness, and national security assurance are valued by investors, he added.

“Short term market swings during geopolitical events are unsettling, but history shows that they rarely derail India’s long-term growth story. In the long term, the macroeconomic factors and corporate earnings drive the stock market performance,” Kotak Mutual Fund said in a report, citing historical trends.

Looking at historical performance of Indian share market after Indo-Pak conflicts, a pattern of initial dips followed by recovery and often, even bigger rallies, have been observed. Across major conflicts since 1999 (Kargil War, Parliament attack, Mumbai 26/11, Uri surgical strikes, Balakot airstrikes), the Nifty's average maximum drawdown has been around 5%. The trend also suggests that when India has mounted a clear military response, the recovery has often been faster, within 1 to 5 days.

Pulwama Attack & Balakot Airstrikes (2019): The Nifty dropped modestly by 1.8% between February 14 and March 1.

Uri Attack & Surgical Strikes (2016): The market fell by over 2% between September 18 and September 26.

Mumbai 26/11 (2008): Surprisingly, during the two days of the attacks, the Sensex climbed by around 400 points, and the Nifty gained 100 points.

Parliament Attack (2001): This event saw a sharper initial drop, with the Nifty falling by 13.9%. Notably, the global factors played a significant role in this downturn.  

Kargil War (1999): Despite the conflict, the Sensex surged by a remarkable 37% during the period from May to July 1999. 

As of now, the market appears to be taking the recent "Operation Sindoor" in stride, with a quick recovery after an initial dip. Staying invested and avoiding knee-jerk decisions may be prudent for long-term wealth creation, suggest market experts.

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