As tensions escalated between India and Pakistan following military strikes by India on May 7, 2025, security measures were heightened in Pakistani cities, notably Muzaffarabad, where residents expressed concern amid reported blackouts. The Indian government undertook a military operation which targeted areas controlled by Pakistan, leading to damaged buildings in the region, as observed by local residents.
Despite the geopolitical unrest, Indian financial markets displayed resilience. Investors remain optimistic about India’s economic prospects, with anticipated growth stemming from structural reforms, strong domestic demand, and robust macroeconomic fundamentals. Mohit Mirpuri, an equity fund manager at SGMC Capital, indicated that while there may be short-term pauses in investment activity, India’s attractiveness as a key allocation in emerging markets remains unchanged.
Analysts have noted parallels with past geopolitical events, such as the response to the Pulwama attack in 2019, which suggests that investor sentiment may remain relatively stable even amidst tensions. Johanna Chua from Citi stated that while some knee-jerk reactions on the market were expected, historical patterns indicate that currency markets may remain contained, and that recent military actions are unlikely to significantly derail the investment landscape.
Additionally, progress on India’s trade discussions, highlighted by a recent free trade agreement with the U.K., has provided a supportive backdrop for the markets, with expectations that India could also finalize a bilateral trade deal with the U.S. by late 2025.
While the situation warrants cautious monitoring—especially in light of potential escalations—experts believe that a quick de-escalation could limit negative impacts on the markets, countering fears of a broader conflict. Kranthi Bathini, director of equity strategy at WealthMills Securities, emphasized the uncertainty surrounding the nature of the conflict, stating that a limited military action would likely have a minor effect on investor sentiment, whereas a full-scale conflict could introduce significant volatility in the stock markets.
Overall, the sentiment among investors remains notably resilient, showcasing a readiness to adapt to unfolding geopolitical events while maintaining a long-term view on India’s growth trajectory.