Stock market, Sensex, Nifty: India strikes Pakistan, PoK with missiles; what history says

India’s benchmark indices — Sensex and Nifty— are in focus on Wednesday, May 7, after the Indian Armed Forces conducted a series of precision strikes targeting terrorist infrastructure in Pakistan and Pakistan-occupied Kashmir (PoK). These actions were carried out in response to the recent terror attack in Pahalgam, which resulted in the deaths of 26 tourists.

A negative start for the domestic stock market is all likely, with Gift Nifty on the NSE IX falling nearly 110 points, or over 0.4 per cent, and was testing 24,300 level. 

According to the Ministry of Defence, nine strategically selected sites—identified as key hubs for planning cross-border terror operations — were struck. The government emphasised that the operation was “focused, measured, and non-escalatory.” Importantly, no Pakistani military facilities were targeted, highlighting what officials described as India’s ‘considerable restraint’ in both target selection and operational execution.

In the past 25 years, there were four major India–Pakistan confrontations since the 1999 Kargil War, along with 19 other wars or war-like incidents involving G20 nations.

Anand Rathi in a recent note observed that even in the event of a significant escalation, the Nifty is unlikely to decline by more than 5–10 per cent. This projection was based on historical patterns and current global risk assessments.

The Pulwama attack and the Balakot airstrike in February–March 2019 resulted in a modest 1.8 per cent decline in Nifty.

Anand Rathi pointed out that, aside from the 2001 Parliament attack, Indian equity markets have typically not fallen more than 2 per cent during periods of heightened tensions with Pakistan.

Even the market correction during the 2001–02 Parliament attack was likely influenced more by global factors, particularly the roughly 30 per cent decline in the S&P 500 during the same period, the brokerage noted recently.

During the Kargil War, which lasted from May to July 1999, the Nifty declined just 0.80 per cent. In contrast, following the Parliament attack in December 2001, India-Pakistan tensions led to a sharper market drop of 13.9 per cent. The Nifty slipped 2 per cent between September 18–29, 2016, after the Uri attack and subsequent surgical strikes.

Following the Pahalgam terror attack, India suspended the Indus Waters Treaty of 1960, which could severely reduce Pakistan’s water supply, Moody’s said. 

“Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability,” the global rating agency said on May 5.