India’s recent military operation, which targeted several locations within territory controlled by Pakistan, has stirred significant geopolitical tensions, yet Indian markets have remained largely unaffected. The scale and intensity of this military action is a first, even when measured against operations in 2016 and 2019. Just last month, a militant attack in Pahalgam, Jammu and Kashmir, killed 26 Indian security personnel. In turn, the operation was implemented to pay attention to that plight.
Yet in the face of this increased military aggression, Indian equities proved remarkably surprising. The benchmark Nifty 50 and BSE Sensex moved very little at market open. That suggests that investors have little reason to fret over continued spats with Islamabad. In reality, the Indian markets laughed off the military strike — stock prices that had tumbled sharply ahead of it stabilized just days afterward.
The Indian rupee—down 0.33% this morning—has depreciated against the U.S. dollar to reach 84.562. This decrease came in the context of a wider regional fall as Asian currencies faced a significant regional downturn. The yields on the Indian 10-year government bonds declined slightly to 6.339%.
As noted by market analysts, volatility can be expected in the near term due to geopolitical risks. Fears of a slowing global economy remain buried beneath rising optimism about the pace of India’s economic growth. India would be among the first countries in the region to complete a bilateral trade deal with the U.S. This agreement can be finalized as soon as just ahead of the start of the third quarter of 2025. Renewed momentum in U.S.-China trade talks has been a key factor in boosting market confidence. That’s been true as recently as this week, when officials sealed a new free trade agreement with the U.K.
“The situation on the border is very dynamic right now. The scope and scale of India’s military action this time around is much greater than during the 2016 or 2019 strikes. Commissioners Tom Miller and Udith Sikand especially underscored the complexities of the quickly changing landscape. Finally, and most importantly, they propose that Pakistan will ever be more pressured than before to launch a ‘proportionate’ retaliatory response.
They noticed that Indian asset prices responded very mutedly to these events overnight. The second obvious implication is that investors do not expect a repeat cycle of military escalation. This renewed sentiment is an indication of tempered optimism amongst investors who are betting on keeping their winning streak alive on India’s growth prospects.
Darren Tay, head of APAC country risk at BMP, was more circumspect. He commented, “While the uptick in exchange of fire is more hostile than the escalation we witnessed in 2019, we still expect this to result in a de-escalation over the next few months.” The real question, he said, is if this spiral will lead to a broader war. Or it might just stay as a stout defense-only strike.
IMD Director-General Kranthi Bathini told the press that a major escalation would erode investor confidence. He pointed out that the opposite—a limited response—could barely move the markets, if at all. Despite rising geopolitical tensions, analysts are confident that aggressive prospects can’t be derailed for India. Strong structural reforms, along with vigorous domestic demand, are providing a solid base for continued growth.
On our first day, Mohit Mirpuri made the case for this perspective. He said, “Underpinned by structural reforms, resilient domestic demand and strong macro fundamentals, we have a strong case. He insisted that investors should expect a very short break. That won’t change India’s status as the world’s most important investment in emerging markets.
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