Moneycontrol Pro Panorama | India Strikes Back: What Operation Sindoor means for markets, trade, and tensions

India launched Operation Sindoor, executing precision airstrikes on nine terrorist sites in Pakistan and Pakistan-occupied Jammu and Kashmir (PoK).

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

There’s a lot to talk about today.

On May 7, 2025, India launched Operation Sindoor, executing precision airstrikes on nine terrorist sites in Pakistan and Pakistan-occupied Jammu and Kashmir (PoK) in response to the April 22 Pahalgam attack that killed 26 people, including 25 Indian citizens and one Nepali national.

The Indian Ministry of Defence described the strikes as "focused, measured, and non-escalatory," carefully avoiding Pakistani military targets to limit escalation.

However, the operation has heightened geopolitical tensions. It also raises concerns over its economic and financial fallout. Sindoor isn’t a regular cross border operation, my colleague Sanjiv Shankaran argues in his piece.

Operation Sindoor has escalated India-Pakistan tensions, with Pakistan’s Prime Minister Shehbaz Sharif labelling the strikes an "act of war" and announcing a 48-hour airspace closure.

Northern Indian airports—including Srinagar, Jammu, and Amritsar—have suspended commercial flights, disrupting logistics and mobility.

What about stock markets?

As I write this, Indian financial markets are trading in a volatile session but have erased some early losses. Shishir Asthana has written about the likely impact of the strikes on the Indian markets.

History offers perspective.

Empirical data suggests that during the 1999 Kargil War, the BSE Sensex dropped approximately 5 per cent in the initial weeks but recovered within months as tensions de-escalated.

Similarly, the 2019 Balakot airstrikes saw the Sensex dip by 0.7 per cent on the day of the strikes, followed by a 7 per cent rally over the next month as global diplomacy calmed nerves. 

The Indian rupee is also under depreciation pressure—much like in 2019 when it weakened 1.5 per cent against the U.S. dollar. The Rupee opened 19 paise weaker against the US dollar.

Prolonged uncertainty, such as Pakistan disrupting trade or energy routes, could deepen volatility. But if escalation is contained, historical trends suggest markets may stabilise.

Pain or Gain?

Operation Sindoor has hit aviation and tourism hard. Air India, IndiGo, and SpiceJet have cancelled flights to northern cities. Jammu and Kashmir’s tourism sector, already reeling from the Pahalgam attack, faces further revenue losses.

During the 2019 Balakot crisis, domestic airlines reported a 10 per cent drop in bookings to northern destinations—a pattern that may repeat.

On the flip side, defence stocks are gaining traction.

Companies like Bharat Electronics, Hindustan Aeronautics, and Paras Defence are well-positioned to benefit—mirroring trends from 2019, when defense stocks rallied 15 per cent –20 per cent in the following quarter due to rising defence budgets.

Energy markets are also on alert. India’s suspension of the Indus Waters Treaty could impact agriculture and hydropower—similar to the post-Uri attack scenario in 2016. Global oil prices, sensitive to regional instability, rose 5 per cent during the 2019 crisis and could spike again, inflating India’s import bill and pressuring the Reserve Bank of India (RBI) to tighten monetary policy.

The India-UK Free Trade Agreement

The good news is that we have a brand new trade agreement on the table.

The India-UK Free Trade Agreement (FTA), covering $21 billion in bilateral trade has been finalised (Read this piece by Abhijit Kumar Dutta). It aims to reduce tariffs and boost Indian exports in textiles, pharmaceuticals, and IT services, while attracting UK investments in infrastructure and clean energy.

Trade analysts estimate that the agreement could add $50 billion to India’s GDP by 2030. Companies in the pharma and IT segments stand to benefit from expanded UK market access, similar to how the 2010 India-Japan FTA boosted auto exports.

The FTA helps diversify India’s trade relationships, cushioning the economy from regional shocks. In 1999, during the Kargil War, India’s global trade engagements helped stabilize its economy. The UK FTA could play a similar role now, particularly for sectors like renewable energy and infrastructure. Do read our Research section's detailed take on the FTA.

So, what should investors do?

There’s a lot to digest—some encouraging developments, and others more concerning.

Operation Sindoor poses short-term challenges. Foreign institutional investors (FIIs) may reduce exposure, as they did in 2019, when they sold $300 million in Indian equities after the Balakot strikes. However, domestic institutional investors (DIIs) remain net buyers, reflecting confidence in India’s projected 6.5 per cent –7 per cent growth in 2025.

Retail investors should avoid panic selling and focus on resilient large-cap stocks, while gold and government securities remain safe havens—gold prices rose 8 per cent during the 2019 tensions.

The UK FTA improves the long-term outlook for export-oriented sectors, making pharmaceuticals and IT attractive for patient investors.

History shows that India’s economy has proven resilient in the face of Indo-Pakistan tensions. After Kargil, GDP growth held steady at 6.1 per cent; post-Balakot, it was 6.8 per cent. Operation Sindoor’s impact will depend on how long the conflict lasts. A swift de-escalation, as in 2019, could restore investor confidence, with the UK FTA acting as a stabilizer.

That said, a prolonged conflict could strain fiscal resources, fuel inflation, delay RBI rate cuts, and hit small and mid-cap stocks—just as they fell 10 per cent during Kargil’s peak uncertainty.

Investing insights from our research team

Himadri Specialty: Near-term growth triggers missing

Kajaria Ceramics: Muted quarter impacted by strategic realignment

CEAT: Is the risk-reward turning favourable?

Steady performance in FY25 for DCB, valuation is the real draw

What else are we reading?

Chart of the Day | Banks’ CD ratio is again back to below 80%. What does it tell us?

Data Story: What’s driving FPIs back to India? A solid economic signal

Is Yes Bank ready for a big-league backer?

How NSE’s algo norms affect retail traders

Will commercial vehicle sales stage a comeback sooner than later?

Martin Wolf: The old global economic order is dead (republished from FT)

Trade wars and global economic uncertainty

AI Governance at Crossroads: National priorities trump global cooperation

India-UK FTA sends the world a clear signal on possibilities

Markets

Defence stocks in focus after Operation Sindoor: Atmanirbhar push behind renewed optimism?

Technical Picks: PAYTM, Sundram Fasteners, Coal India, Poonawalla Fincorp.

Dinesh Unnikrishnan Moneycontrol Pro