Markets vs Missiles: A Historical Analysis of Indian Stock Market Behaviour During India-Pakistan Conflicts

During periods of heightened tensions between India and Pakistan—ranging from full-fledged wars to cross-border skirmishes—the Indian stock market has historically demonstrated short-term volatility followed by swift recoveries, underscoring investor confidence in India's economic fundamentals. From the 1999 Kargil War to more recent escalations in 2016 and 2019, market behaviour reflects a combination of geopolitical anxiety and long-term economic optimism.

1971 Indo-Pak War:

When India decisively intervened in East Pakistan, leading to the creation of Bangladesh, the Bombay Stock Exchange (BSE) witnessed brief dips. However, due to limited global exposure and the controlled nature of the economy at the time, market reactions were relatively muted. Investors had fewer options, and the government tightly regulated capital markets.

1999 Kargil War:

The Kargil conflict in May-July 1999 between India and Pakistan over intrusions in Jammu and Kashmir's Kargil sector sparked immediate investor fears. The BSE Sensex fell by around 286 points (nearly 4 per cent) on May 26, 1999—the day India officially confirmed Pakistani infiltration. However, as the conflict remained localised and confidence in the Indian military grew, markets began recovering swiftly. By July 1999, even before the conflict officially ended, the Sensex had rebounded, aided by strong corporate earnings and a stable political environment. “The market viewed Kargil as a short-term event with no long-term economic impact,” said a research note by Kotak Securities at the time.

Conflict/Event	Date	Initial Market Reaction	Recovery Pattern	Key Insights
Kargil War	May – July 1999	Sensex fell ~286 points (~4 per cent) early in conflict	Rebounded by July; resumed upward trend	Market trusted economic reforms and swift military success
Parliament Attack & Operation Parakram	December 2001 – mid 2002	Minimal impact on Sensex	Stable throughout	Market factored in unlikely escalation
26/11 Mumbai Attacks	November 2008	Sharp fall amid global financial crisis (~Sensex down 10%)	Gradual recovery over months	Fall linked more to global crisis than terror event
Pulwama Attack & Balakot Air Strikes	February 2019	Sensex dropped ~500 points initially (~1.4 per cent)	Recovered quickly once escalation fears eased	Market anticipated limited scope conflict
Pahalgam Attack & Operation Sindoor	April 2025 (ongoing)	Sensex plunged 950 points; Nifty fell 1.19 per cent	Yet to stabilise; high vigilance by investors	First sharp drop since tensions rose; markets reacting cautiously to conflict
Current Comparison: Pakistan’s KSE-100	April 2025	Crashed ~9 per cent in 2 days after India’s military operations	Remains highly volatile	Reflects fragility of Pakistan’s economic and political situation

2016 Surgical Strikes:

Following the Uri terror attack in September 2016 and India's retaliatory surgical strikes across the Line of Control, the Sensex dropped over 500 points intraday. However, the fall was temporary. The market recouped losses within days as investors interpreted the move as strategic rather than a prelude to full-scale war. The resilience was further supported by favourable macroeconomic indicators and strong foreign institutional investment.

2019 Balakot Airstrikes:

After the Pulwama terror attack in February 2019, India launched airstrikes in Balakot, Pakistan. This led to increased volatility on the bourses, with the Sensex falling nearly 500 points on the day of the airstrike. However, within a week, markets not only stabilised but surged, driven by investor sentiment that the Indian response had enhanced its geopolitical stature without destabilising the economy. “The Balakot incident initially spooked investors, but once it was clear the conflict wouldn't spiral, confidence returned rapidly,” noted market analyst Ajay Bagga.

2025: Operation Sindoor and Market Response

As of May 2025, amid Operation Sindoor—a series of Indian military strikes in response to the April 22 terror attack in Pahalgam—Indian stock indices have remained steady until today when Sensex plunged today upto 950 points. Unlike Pakistan’s Karachi Stock Exchange, which plunged 9 per cent in two days, Indian markets have shown no major disruption. Analysts attribute this to India’s strong forex reserves, stable economic indicators, and past precedence of resilience during conflicts.

Key Factors Behind Resilience:

Strong Economic Fundamentals: India's position as the world’s fifth-largest economy (soon to be fourth) underpins market confidence.

Investor Maturity: Indian retail and institutional investors increasingly view such escalations as temporary.

Policy Continuity: Government stability and macroeconomic reforms cushion investor sentiment.

Global Perception: Markets tend to favour nations perceived as measured and economically focused, which has benefited India during previous conflicts.

History shows that while India-Pakistan conflicts cause momentary jitters in the Indian stock market, they do not alter its long-term trajectory. With each episode—from Kargil to Balakot and now Operation Sindoor—the Indian bourses have demonstrated resilience, reinforcing the market's faith in India's economic and strategic management.

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