Escalating Indo-Pak Tensions Rattle Indian Stock Markets

Indian stock indices, Sensex and Nifty, took a hit for the second consecutive day due to escalations in Indo-Pak tensions. Sensex closed at 79,454.47 points, dropping by 880.34 points, representing a 1.10% decline. Similarly, Nifty ended at 24,008.00 points, down by 265.80 points or 1.10%. The real estate sector was notably affected, plummeting by 2.4%, with Nifty and PSU banks managing to stay afloat amidst volatility.

The week concluded with Sensex and Nifty both experiencing about a 2% slump. This comes after both indices had their longest winning streak of the year in a holiday-shortened week, wherein Sensex rose over 1,100 points or 1.5%. The closures were marked by a holiday on May 1 celebrating Maharashtra Day.

The rise in geopolitical tensions is primarily attributed to ceasefire violations by Pakistani forces targeting Indian civilian areas and military posts along critical borders. While Indian forces retaliated effectively, financial markets were unsettled by the situation's pace and uncertainty. Analysts like Vinod Nair of Geojit Investments speculate that though conflict was anticipated, the severity was underestimated. Nonetheless, Nair predicts it will be short-lived due to strategic advantages India holds.

Despite the turmoil, Foreign Institutional Investors persisted with investments in Indian markets, with foreign portfolio investors turning net buyers for the first time in three months. This investment activity highlights a tentative optimist stance, even as retail investors exercise caution.

According to Bajaj Broking Research, despite positive global signals, local geopolitical strife has nudged benchmark indices downwards for back-to-back sessions as of May 9. Stock market stability was previously bolstered by Trump's suspension of reciprocal tariffs, but geopolitical distress stemming from the April 22 terrorist incident in Pahalgam continues to loom over investor sentiment.

(With inputs from agencies.)