Operation Sindoor & Market Jitters: Will Geopolitics Shake Your Portfolio or Strengthen It?

India carried out Operation Sindoor as a response to the tragic terror attack in Pahalgam. This precision military operation targeted nine terrorist camps located in Pakistan and Pakistan-occupied-Kashmir (PoK). 

This marks the third such action since 2016, following the Uri surgical strike and the Balakot airstrike, which have escalated tensions between the two nuclear-armed countries.

Historically, these military operations have had a limited impact on the Indian stock markets.

Stock Markets During Kargil War, Uri Strike, Balakot airstrike

Looking at past data, the Nifty 50 index showed resilience during previous strikes. After the Uri strike in 2016, the market dropped slightly by 0.3% before the strike and rose by 0.4% on the day of the strike. A year later, it had gained 11.3%.

Similarly, during the Balakot airstrike in 2019, Nifty rose 0.8% before the strike, dipped 0.4% on the strike day, and ended up 8.9% higher a year later.

These examples show that despite temporary dips, markets tend to recover and grow over time.

Also Read: Pahalgam Attack, 'Operation Sindoor' & What It Means For Investors

The government’s response also suggests that a full-scale war is unlikely. However, if such a situation does occur, past conflicts provide useful insights. 

During the Kargil War in 1999, markets initially fell by 8.3% a month before the war, but gained 36.6% during the conflict and ended up 29.4% higher a year later. 

This again shows that the Indian equity market has the strength to bounce back even in tough times.

Indian Economy During War

From an economic standpoint, wars have led to some increase in inflation and fiscal deficit, but the overall growth story of India has remained strong. 

For instance, during the Kargil War, GDP grew from 6.18% in FY1999 to 8.85% in FY2000, even though inflation (WPI) and the fiscal deficit also rose slightly.

Looking further back, other wars like the Sino-Indian War (1962), Indo-Pak War (1965), and Bangladesh Liberation War (1971) have shown a similar pattern—mild short-term economic disruptions, but no lasting damage to India's long-term economic growth. 

Inflation and fiscal deficits did rise during those periods, but GDP growth was mostly maintained.

What Should Investors Do?

For the current situation, there are two main possible outcomes. If the conflict is prolonged, macroeconomic challenges like rising inflation and fiscal deficit could increase, and markets may correct more. 

But if the conflict remains limited or is resolved quickly, the impact on both the economy and markets should be small and temporary.

So, what should investors do in this situation? Kotak Mutual Fund suggests that Systematic Investment Plans (SIPS) should not be stopped. 

In fact, if possible, investors may consider topping up their SIPs. For lump sum investors, it is better to invest gradually in a staggered manner instead of reacting in panic. Selling in fear during volatile times has rarely worked in the long run.

Disclaimer: The views expressed in this article are purely informational and Republic Media Network does not vouch for, promote or endorse any opinions stated by any third party. Stock market and Mutual Fund investments are subject to market risks and readers are advised to seek expert advice before investing in stocks, derivatives and Mutual Funds.