As geopolitical tensions escalated following India’s launch of Operation Sindoor, financial markets across the subcontinent responded sharply but asymmetrically. While Indian markets closed on a flat-to-positive note after a volatile trading day, Pakistan’s KSE-100 index crashed, reflecting growing investor panic and macroeconomic fragility.

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Indian markets volatile but end positive

The Indian stock market ended Wednesday’s session on a muted but steady note, with the Sensex closing near the 80,800 mark and the Nifty finishing just above 24,200. This came after India confirmed overnight strikes on nine terror infrastructure sites in Pakistan and Pakistan-occupied Kashmir — part of its retaliatory campaign named Operation Sindoor, launched in response to the April 22 Pahalgam terror attack that killed 26 civilians, including foreign tourists.

The Sensex closed in the green, up over 100 points after a volatile session during which the index see-sawed between gains and losses. Meanwhile, the Nifty closed marginally higher after gyrating wildly, reflecting caution amid geopolitical uncertainty but also confidence in India’s economic fundamentals.

Early in the session, benchmark indices opened with losses — the BSE Sensex at 79,948.80, down 0.86 per cent, and Nifty 50 down 0.6 per cent to 24,233.30. However, strong intraday recoveries were led by gains in defence and aerospace stocks such as Hindustan Aeronautics, Bharat Dynamics, BEL, Mazagon Dock, and Paras Defence, which rose between 1.3 per cent and 4 per cent amid expectations of increased government spending on strategic sectors.

While auto, FMCG, IT, and pharma sectors posted gains, metal, realty, and energy indices lagged. The Indian rupee remained stable, and bond yields showed little change — suggesting that institutional investors perceive the strikes as tactical and unlikely to trigger prolonged conflict.

Pakistan markets plunge on panic selling

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Pakistani stocks endured a rough day as investors panicked over potential military escalation, international isolation, and further economic deterioration. The KSE-100 index closed at 1,10,009.03, down 3,560 points, making it one of the steepest one-day falls in recent memory — despite the index trading well above the 1,00,000-point mark in recent months.

Losses were widespread across banking, telecom, cement, and energy sectors, all of which are sensitive to external shocks. Pakistan’s economic fundamentals, already strained by high inflation, low foreign reserves, and stringent IMF conditions, were ill-equipped to absorb the added pressure from rising cross-border hostilities.

The Pakistani rupee weakened further in forex markets, and analysts warned of increased volatility if the situation on the Line of Control (LoC) worsens.

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India's Operation Sindoor against Pakistan

The cross-border market volatility followed India’s launch of Operation Sindoor, a coordinated series of precision missile strikes on nine terrorist infrastructure sites across Pakistan and Pakistan-occupied Kashmir in the early hours of May 7. The strikes were in direct retaliation for the April 22 Pahalgam terror attack, which claimed 26 civilian lives, including foreign tourists.

According to Indian defence officials, the targeted sites were affiliated with Jaish-e-Mohammed, Lashkar-e-Taiba, and Hizbul Mujahideen — spanning locations in Bahawalpur, Muridke, Sialkot, Kotli, Barnala, and Muzaffarabad. India termed the operation as “measured and non-escalatory,” focused on dismantling terror infrastructure without civilian casualties.

Pakistan, however, condemned the strikes as an “act of war,” and has reportedly opened retaliatory shelling across multiple sectors along the Line of Control (LoC), pushing the region to the brink of further escalation.

While Indian markets appear to be pricing in a controlled conflict scenario, Pakistan’s economic fragility is being fully exposed. With global investors watching closely, the next few days will be critical in determining whether diplomacy or deterrence takes center stage.