Market Reaction to Pahalgam Attack Mirrors Historical Trends
Following the terrorist attack on tourists at Pahalgam, the Indian stock market experienced initial weakness, with cautious sentiment prevailing among investors. However, market experts point out that history suggests Indian equities often recover quickly from geopolitical shocks involving India and Pakistan. Analysts indicate that while concerns persist around the extent of India’s possible military response, the current cautiousness in the market is in line with historical patterns. Heightened diplomatic tensions and renewed firing along the Line of Control (LoC) have amplified uncertainty, leading many high-net-worth individuals (HNIs) to adopt a guarded approach.
Highlights:
Indian stock markets show typical cautious behavior post-Pahalgam attack.
Investor focus remains on India’s potential military response.
HNIs adopt a cautious stance amid escalating Indo-Pak tensions.
Lessons from the Pulwama Attack and Balakot Air Strikes
Historical data from the Pulwama terror attack and subsequent Balakot air strikes in 2019 reveal that markets initially react with mild weakness before stabilizing swiftly. On February 26, 2019, when Indian Air Force jets struck terrorist camps in Balakot, the Sensex fell by 239 points and the Nifty lost 44 points. However, the very next day, markets recovered, with the Sensex opening higher by 165 points and eventually closing flat. Following the Pulwama attack on February 14, 2019, markets had dropped by only 0.2 percent the next day, indicating limited impact from such geopolitical events in the immediate term.
Highlights:
Sensex and Nifty fell post-Balakot strikes but rebounded the next day.
Pulwama attack saw only a 0.2% dip in benchmark indices.
Markets historically show quick recovery after initial panic.
Uri Attack and 2016 Surgical Strikes Impact
The 2016 Uri terror attack and subsequent surgical strikes had a more pronounced short-term impact on Indian equities. The Sensex dropped over 400 points, while the Nifty declined by 156 points on the day following the announcement of India’s military action. Despite the initial fall, historical patterns suggest that Indian markets tend to digest such developments rapidly, often recovering within days or weeks as clarity emerges and panic subsides.
Highlights:
Surgical strikes post-Uri attack triggered sharper market reaction.
Sensex fell over 400 points; Nifty lost 156 points.
Market rebounds typically follow initial corrections after conflicts.
26/11 Mumbai Attacks and the 1999 Kargil War: Unexpected Market Resilience
Even during one of India’s most tragic terror events, the 26/11 Mumbai attacks in 2008, the equity markets defied expectations by posting gains. The Sensex rose nearly 400 points over two trading sessions during the attacks, while the Nifty added about 100 points. Similarly, during the 1999 Kargil War, the Sensex and Nifty gained around 33 percent over the three-month conflict, with the Sensex surging 1,115 points and the Nifty climbing 319 points. These instances underscore the historical resilience of Indian markets in the face of geopolitical crises.
Highlights:
26/11 Mumbai attacks saw Sensex and Nifty post gains during the crisis.
Kargil conflict witnessed a 33% rise in both indices over three months.
Indian equities have a history of resilience during major geopolitical shocks.
Expert Views: Current Market Behaviour Consistent with Past Patterns
According to Deepak Jasani, an independent research analyst, the cautious market sentiment following the Pahalgam incident is consistent with prior geopolitical tensions involving India. Historically, domestic investors tend to panic in the immediate aftermath of such events, leading to selling pressure, while foreign investors often continue to accumulate Indian equities. Analysts believe a similar trend is unfolding now, with FIIs remaining buyers even as local sentiment remains fragile.
Highlights:
Current market behavior mirrors historical responses to conflict.
Domestic investors show panic-driven selling; FIIs continue buying.
Analysts expect temporary caution rather than a prolonged downtrend.
Geopolitical Risks and Q4 Earnings Weigh on Sentiment
Apart from geopolitical tensions, the Q4FY25 earnings season has added to market caution. Most corporate results have either met or slightly missed Street expectations, offering no significant positive surprises to bolster sentiment. As a result, market participants are now dealing with dual concerns: potential escalation along the Indo-Pak border and lackluster earnings growth, both of which contribute to short-term volatility.
Highlights:
Q4FY25 earnings largely in line or slightly below expectations.
No major earnings surprise to counter geopolitical concerns.
Volatility expected to persist amid dual headwinds.
HNIs Turn Cautious Amid Anticipation of Military Response
Reports suggest that many high-net-worth individuals (HNIs) have adopted a cautious investment approach amid fears of an escalated military response by India. According to Amreesh Baliga, an independent research analyst, conversations with HNIs indicate growing apprehension and selective profit booking. This behavior partly explains the recent decline in Indian markets despite robust foreign fund inflows. While some correction is expected, analysts believe a sharp, sustained decline would require a significant intensification of hostilities.
Highlights:
HNIs cautious amid fears of broader military action.
Selling pressure evident despite FII buying support.
Sharp declines unlikely unless tensions escalate severely.
Markets Likely to Stay Volatile as Developments Unfold
Ajay Bagga, an independent analyst, emphasized that any kinetic military action by India could trigger a sharp but short-lived correction in the markets. He stressed that containing the situation to a limited and localized conflict would be critical in preventing a deeper and prolonged market selloff. In the coming weeks, markets are expected to remain on edge, with heightened sensitivity to developments along the border.
Highlights:
Short-term sharp correction possible if military action occurs.
Containment of hostilities essential to market stability.
Markets expected to remain volatile in the near term.
