In a remarkable display of resilience, Indian financial markets have remained largely unshaken following a series of military strikes by India within Pakistan-administered territory. The strikes, conducted early Wednesday, were in response to heightened geopolitical tensions after a militant attack in Jammu and Kashmir last month claimed 26 lives. Despite the escalation, investors remain optimistic about India’s growth trajectory, underscoring the strength of domestic fundamentals.
Markets Hold Steady Amid Geopolitical Tensions
The benchmark Nifty 50 and BSE Sensex indices traded nearly flat in the wake of the operation, reflecting investors’ calm and confidence in the broader economic outlook. While the rupee weakened slightly by 0.33% to 84.562 against the U.S. dollar, it remained near three-month highs, signaling stability in the currency markets. Similarly, the yield on India’s 10-year benchmark government bonds saw only a marginal dip to 6.339%.
Historical precedents seem to support this muted reaction. Following similar military actions in 2016 and 2019, Indian markets experienced only temporary volatility before regaining composure. According to Johanna Chua, Citi’s global head of emerging market economics, “Indian assets will remain fairly contained despite the increase in geopolitical tensions with Pakistan.”
Structural Reforms and Trade Talks Bolster Confidence
Investors’ confidence in India is buoyed by strong domestic demand, structural reforms, and a promising macroeconomic outlook. Mohit Mirpuri, an equity fund manager at SGMC Capital, highlighted these factors, stating, “Structural reforms, resilient domestic demand, and strong macro fundamentals continue to offer a compelling case for India.”
Adding to the optimism are India’s ongoing trade negotiations with major partners. Just a day before the strikes, India secured a free trade agreement with the United Kingdom. Additionally, the country is on track to finalize a bilateral trade deal with the United States, potentially by the third quarter of 2025. Such developments are expected to strengthen India’s position as a key player in global trade and investment.
The Geopolitical Impact: A Contained Risk?
While markets have shown resilience, experts caution against complacency. The scope and scale of India’s latest military operation are reportedly more extensive than previous strikes in 2016 or 2019, raising concerns about the possibility of a proportionate response from Pakistan. Tom Miller and Udith Sikand, senior analysts at Gavekal, noted, “The situation on the border remains fluid, and Pakistan could feel compelled to mount a stronger retaliation. However, the muted reaction of Indian asset prices suggests investors don’t expect an endless cycle of military retaliation.”
Kranthi Bathini, director of equity strategy at WealthMills Securities, echoed similar sentiments. “The key question is whether this turns into a full-fledged conflict or remains a limited defense strike. A wider escalation could dent investor sentiment, while a contained response may barely leave a mark on the markets,” he stated.
Looking Ahead
Despite the geopolitical tensions, the broader narrative around India’s economy remains upbeat. Darren Tay, head of APAC country risk at BMP, expects the situation to de-escalate in the coming months. “We believe Indian assets will remain attractive, and investors should remain generally bullish on India,” he said.
While there may be short-term volatility, India’s robust economic fundamentals, coupled with progress in trade agreements, are expected to keep it on a solid growth trajectory. As investors cautiously monitor developments on the border, the resilience of Indian markets serves as a testament to the country’s growing economic strength and global appeal.
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