Selloff on D-St! Nifty tests 24,000, Sensex sinks 1,000 points as India-Pakistan conflict escalates, volatility spikes

Domestic frontlines Nifty 50 and Sensex saw a gap-down open in trade on Friday, May 9, as the caution and fear in the markets surged amid rising geopolitical tensions between India and Pakistan.

At 10:40 am, the Sensex was down 785.91 points or 0.98 percent at 79,548.90, and the Nifty was down 254.75 points or 1.05 percent at 24,019.05. About 400 shares advanced, while 2,233 shares declined indicating that the market breadth was in favour of the bears, and 65 shares were unchanged.

Overnight, several locations in Jammu and Kashmir, Punjab and Rajasthan, particularly Jammu Airport, which also houses an Indian Air Force station, and Pathankot Airbase came under attack after Pakistan resorted to heavy artillery shelling along with drone and loitering munition attacks.

The ongoing geopolitical tensions lead to surging fear and volatility in investors' sentiment. The India VIX index, which measures volatility, soared 7 percent to 22.65 levels.

The broader markets faced deeper losses, with the Nifty Midcap 100 and Nifty Smallcap 100 indices falling up to two percent. All sectors traded in the red, with the Nifty Metal, Realty and Banking indices seeing the sharpest losses, sinking up to one percent. Further, the rupee extended losses, sinking 12 paise on open to the 85.84 mark.

Global cues favourable

US stocks rose on Thursday as investors cheered a new trade agreement hammered out between the United States and Britain, while U.S. President Donald Trump signaled upcoming talks with China would be more substantial than initially thought.

The Dow Jones Industrial Average rose 0.62 percent, the S&P 500 gained 0.58 percent, and the Nasdaq Composite gained 1.07 percent. Further, Asian stocks inched higher on Friday after US President Donald Trump announced a trade deal with the UK and signaled tariffs on Chinese goods may fall if upcoming talks go well.

Technical levels to watch

This back-and-forth tug-of-war between bulls and bears led to intraday traps, reflecting a classic case of indecisive market behaviour. The lack of a directional trend underscores the presence of aggressive traders on both sides, fighting for control, said Dhupesh Dhameja, Derivatives Research Analyst, SAMCO Securities.

Currently, the market seems to be in a time-wise consolidation phase, digesting prior gains while waiting for a strong trigger to set a definitive direction. The Nifty now trades just above its near-term support at 24,200. The lack of follow-through buying at higher levels is denting bullish confidence, he added.

As a result, the key resistance for the index lies in the 24,400–24,500 zone. A conclusive breakout above this band could spark short-covering, pushing the index toward the 25,000 mark. Conversely, a decisive drop below 24,200 could pave the way for further losses toward the 23,900–24,000 region.

How should investors position themselves?

In the short-term, investors are advised to stay cautious, avoid aggressive positions, and focus on fundamentally strong stocks with limited near-term exposure to geopolitical risks. Defensive sectors and quality large caps may offer better stability in the current environment, noted Shrikant Chouhan, Head – Equity Research, Kotak Securities.

The odds of a full-scale war between India and Pakistan remain extremely low—just about 1%—and not something investors can predict or position for, said Samir Arora, founder of Helios Capital in a conversation with Moneycontrol.

Instead, he argued, the bigger story is India’s resilience and long-term strength as a global investment destination, despite temporary geopolitical flare-ups. “A war situation and big collapse is a 1 percent probability event which we cannot predict,” Arora said. “But for this India-Pakistan tension, the India theme is only getting stronger.” At this point, you have to believe heart-of-heart that the situation will remain contained and this will ease sooner than later, he said.

Lessons from history

In the case that the ongoing conflict escalates into a full-blown war, Kotak Mutual Fund said, "We must note that since 1950, India has seen 4 major wars. In the last major conflict (Kargil in 1999), the equity markets remained robust after an initial panic."

While short-term market swings during geopolitical events can be unsettling, history shows that they rarely derail India’s long term growth story. In the long term, the macro-economic factors and corporate earnings drive the stock market performance, added the fund house.

If there is an escalation, Samir Arora expects Indian equities to rebound sharply when the war stops. “The day this stops, markets will come back with a vengeance, recovering at least 80 percent of the loss. That is what history tells us,” he said.

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