Indian shares fell on May 8, 2025, as geopolitical tensions between India and Pakistan intensified, leading to increased market volatility. India’s volatility index rose sharply as news of escalating tensions with Pakistan emerged. The heightened geopolitical risks have triggered investor concerns, leading to a sell-off in Indian markets.
Despite the recent military strikes against Pakistan, Indian markets have remained notably robust. Structural reforms, resilient domestic demand, and strong macroeconomic fundamentals continue to provide a compelling case for investors. Mohit Mirpuri, an equity fund manager at SGMC Capital, noted that these factors ensure India’s attractiveness as a key allocation in emerging markets.
Markets also seemed bolstered by progress in India’s trade negotiations with major partners. India sealed a free trade agreement with the U.K. on Tuesday, and it is expected to finalize a bilateral trade deal with the U.S. by the third quarter of 2025. Radhika Rao, a senior economist at DBS Bank, expressed optimism about the future of Indian assets despite heightened geopolitical tensions.
Market reacts to India-Pakistan tensions
Historical precedents support the optimism, as highlighted by Johanna Chua, global head of emerging market economics at Citi. She referenced the relatively contained market reaction following the 2019 Pulwama attack, which had led to Indian strikes on Pakistan-administered territory.
Despite the recent military operation, the benchmark indices like the Nifty 50 and BSE Sensex remained largely unchanged. Some experts, such as Kranthi Bathini, director of equity strategy at WealthMills Securities, anticipate potential volatility but expect a gradual recovery provided the conflict does not escalate further. Bathini emphasized that the investor sentiment would be largely influenced by whether the situation spirals into a broader conflict or remains a limited strike.
Currency markets also showed resilience, with the rupee weakening only slightly to 84.562 against the US dollar amidst a broader depreciation across Asian currencies. The yield on the 10-year Indian government bonds was marginally lower at 6.339%. Darren Tay, head of APAC country risk at BMP, and analysts Tom Miller and Udith Sikand from Gavekal, pointed out that while the situation seemed more intense than past incidents, the muted reaction from asset prices suggested investors do not foresee a prolonged military conflict.
India’s military action follows a militant attack last month in Pahalgam, Jammu and Kashmir, where 26 people were killed. Despite the recent escalation, analysts and investors are generally maintaining a bullish outlook on India’s economic fundamentals and market resilience.
Image Credits: Photo by Julian Yu on Unsplash
