India-Pakistan tensions flare up: Defence stocks stay strong; textile, banking stocks slip

Watch stocks as markets weigh conflict risk and sector rotation

As tensions between India and Pakistan continue to rise, Indian markets came under pressure on May 9. Defence, which have recently been on investors' radar, continued to see investors interest, while select textile stocks saw profit-booking, and banking stocks came under pressure after significant overnight declines in the American Depository Receipts (ADRs) of HDFC Bank and ICICI Bank.

Here's how they reacted:

Defence stocks: Shares of Hindustan Aeronautics, Bharat Dynamics, and Bharat Electronics surged in the range of 1-2 percent on May 9 as tensions between India and Pakistan escalated. The stocks have jumped as much as 12 percent over the past month. Investors are revisiting this sector with hopes of increased defence spending by the government as tensions with Pakistan escalate.

Since India and Pakistan are nuclear-armed neighbors with a long history of border disputes, any rise in conflict usually boosts interest in defence companies. These firms are seen as key investment opportunities as the market expects higher demand for defence contracts and production.

Bharat Forge Chairman and Managing Director, Baba Kalyani, told CNBC-TV18, “We’ve been called to Delhi next week. Our team is going. I can’t say more.” Kalyani Group manufactures a wide range of defence equipment including artillery systems, protected and armoured vehicles, ammunition, missiles, air defence solutions, and defence electronics. It is not yet known which other defence companies have been asked to meet in New Delhi.

Early this morning, Pakistan again launched heavy shelling across the Line of Control (LoC) in Poonch, Rajouri, Uri, and Chowkibal Kupwara. Several houses were damaged in Uri and Chowkibal Kupwara, and one woman was reportedly killed in Uri.

This came after India said it had “neutralised” multiple drone and missile attacks from Pakistan that targeted military installations in Jammu and Pathankot. Similar attack attempts were foiled at 15 locations across the northern and western parts of the country.

Textile stocks: Some profit-booking was seen in textile stocks on May 9, with SP Apparels, Gokaldas Exports and Arvind down 2 percent each after these shares surged up to 17 percent two days back following India’s free trade agreement (FTA) with the UK.

The FTA is seen as a big boost to the Indian textile sector’s competitiveness in the UK market. It provides tariff concessions that were previously unavailable. Indian textile exports such as women’s clothing, shirts, trousers, and bed linens—which currently face a 10 to 12 percent import duty in the UK—are expected to benefit from the deal.

Banking stocks: The banking sector came under spotlight on May 9 after ADRs of HDFC Bank and ICICI Bank fell more than 4 percent each overnight. HDFC Bank, which holds around 13 percent weight in the Nifty, slipped nearly a percent, while ICICI Bank also saw decline of over a percent. HDFC Bank stock has already climbed around 9 percent in the past month after a strong March quarter performance. ICICI Bank has shown a similar gain of about 9 percent during the same period.

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