Operation Sindoorimpact: Market reactions to Indo-Pak military tensions have historically been measured. During past confrontations between the two nations since 1999, the Nifty 50 has typically experienced modest declines of approximately 5%, followed by robust recoveries yielding double-digit gains within six months.Despite border tensions, financial markets have maintained their focus on core economic indicators.According to an ET analysis, this pattern is being observed again following India’s coordinated precision strikes against nine terrorist locations in Pakistan and Pakistan-occupied Kashmir (PoK), responding to the Pahalgam terror incident that resulted in 26 civilian casualties. Operation Sindoor has had minimal impact on Indian stock markets. The Nifty and Sensex recovered quickly after a brief initial decline, remaining focused on capital flows and economic fundamentals.This stability reflects established patterns.Also Read | Operation Sindoor impact: Pakistan stock market crashes 5% after India strikes Pakistan terrorist campsAnalysis of major conflicts – the Kargil War (1999), Parliament attack (2001), the 26/11 Mumbai terror strikes (2008), Uri surgical strikes (2016) and Balakot airstrikes (2019) – shows the Nifty’s average maximum decline was merely 5.27%, falling short of correction levels. Data from Bajaj Broking quoted by ET indicates positive six-month returns in four out of five instances, with particularly strong recoveries exceeding 35% following the 1999 and 2008 events.Markets tend to remain stable during geopolitical tensions because investors typically focus on future prospects. Unless conflicts intensify into full-scale warfare or affect fundamental economic indicators such as trade, inflation, currency or capital movements, markets generally disregard temporary disturbances.“Even in the event of a substantial escalation, we believe the Nifty 50 is unlikely to correct more than 5–10%,” said Anand Rathi, highlighting how current global risk appetite remains resilient. “Investors who have any equity gap in the portfolio should invest now, aligning to the 65:35:20 strategic allocation.”Also Read | Real economic blow to Pakistan! India chokes $500 million Pakistani goods entering it via third countriesHistorically, the Parliament attack in 2001 stands out as the most significant anomaly, carrying substantial international implications. It occurred shortly after the September 11 attacks, when global markets were uncertain and risk-averse behaviour prevailed across asset categories. The situation extended beyond South Asia. The 2008 Mumbai attacks coincided with the global financial crisis, creating a pessimistic market environment, the report said.However, during incidents like Kargil (1999) and Balakot (2019), despite heightened tensions, these situations remained contained. Markets viewed these events primarily as political or strategic developments rather than economic disruptions.Market Resilience in Current Times“What stands out in Operation Sindoor is its focused and non-escalatory nature,” noted Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit. “The market had already discounted the Indian strike. What’s driving resilience is the Rs 43,940 crore in FII flows over 14 days. That’s where the real support lies.”The current market structure shows notable differences. Individual investors demonstrate increased sophistication, whilst domestic institutions maintain substantial cash reserves. Foreign Institutional Investors (FIIs), traditionally cautious during border tensions, now show preference for Indian large-cap companies, anticipating growth opportunities in a stagnant global environment.“India’s macroeconomic fundamentals remain robust,” observed Devarsh Vakil, Head of Prime Research at HDFC Securities. “Cash-rich mutual funds and steady FII buying are buffering our markets from short-term shocks.”The current scenario would only alter significantly if the situation escalates to warfare, triggers sanctions, or causes economic disruption. Present indicators suggest this represents a buying opportunity rather than a signal to sell, say experts.Historical patterns indicate that market trajectories remain positive despite geopolitical tensions.

The India-UK free trade agreement has no provision to counter Britain’s proposed carbon tax. File
| Photo Credit: Getty Images/iStockphoto

The India-UK free trade agreement has no provision to counter Britain’s proposed carbon tax, but amid uncertainty and absence of UK legislation, New Delhi has preserved its right to retaliate or rebalance concessions if future measures impact domestic exports, an official said.

The UK government in December 2023 decided to implement its Carbon Border Adjustment Mechanism (CBAM) starting 2027.

According to economic think tank GTRI, India’s exports worth USD 775 million to the UK may be impacted due to Britain’s decision to introduce carbon tax on products such as iron and steel, aluminium, fertiliser and cement, from 2027.

Also Read | EU ready to address ‘specific concerns’ of India on carbon tax levy on imports

The official said that the free trade agreement (FTA) with the UK has no provisions to counter CBAM, which has the potential to nullify the concessions offered by Britain to India.

“Because of current uncertainty and no legislation in place, there is an understanding that India will/ has preserved its right to retaliate or rebalance the concessions (in future),” the official said.

The UK, after the European Union (EU), will be the second economy to implement CBAM. It calls it the import carbon pricing mechanism and it will initially focus on sectors like iron, steel, aluminum, fertiliser, hydrogen, ceramics, glass, and cement.

This tax could range from 14-24% of the import value on full phase-out of free allowances under the ETS (Emission Trading System).

During the recent visit to London, Commerce and Industry Minister Piyush Goyal has flagged concerns over this tax and has conveyed that India may consider retaliation if the UK would go ahead with the plan.

Image used for representational purpose only. File
| Photo Credit: Reuters

The Rupee depreciated 31 paise to 84.66 against the U.S. dollar in early trade on Wednesday (May 7, 2025), after India’s military strikes against terrorist camps in Pakistan and Pakistan-occupied Kashmir increased cross-border tensions.

Indian armed forces on early Wednesday (May 7, 2025) carried out missile strikes on nine terror targets in Pakistan and Pakistan-occupied Kashmir including the Jaish-e-Mohammad stronghold of Bahawalpur and Lashkar-e-Taiba’s base in Muridke.

The military strikes were conducted under Operation Sindoor two weeks after the Pahalgam attack that killed 26 civilians.

Forex traders said the military strikes against terrorist camps in Pakistan and Pakistan-occupied Kashmir bring the focus on the escalation of conflict onto the Rupee.

At the interbank foreign exchange, the domestic unit opened at 84.65 and fell to 84.66 against the greenback, registering a loss of 31 paise over its previous close.

On Tuesday (May 6, 2025), the Rupee settled for the day five paise lower at 84.35 against the U.S. dollar amid growing uncertainty and a cautious recalibration of risk appetite.

“There could be some dollar buying by speculators and panicky importers but we think the Reserve Bank of India (RBI) will be present to stop any major slide of the Rupee,” Anil Kumar Bhansali, head of Treasury and executive director, Finrex Treasury Advisors LLP said.

Mr. Bhansali further said, “We expect there could be some selling by FII in the equity markets though that could be subdued as they would want to wait for further news of escalation to filter down.

“Markets today are likely to be nervous and a bit volatile, but as we said earlier, it would depend on RBI to control the market volatility and they will determine where the Rupee ends today.” Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.30% at 99.53.

Brent Crude, the global oil benchmark, rose 0.68% to $62.57 per barrel in futures trade. In the domestic equity market, the 30-share BSE Sensex declined 107.74 points, or 0.13%, to 80,533.33, while the Nifty fell 24.35 points, or 0.10%, to 24,355.25.

Foreign institutional investors (FIIs) bought equities worth ₹3,794.52 crore on a net basis on Tuesday (May 6, 2025), according to exchange data.