Sensex falls 300 points after India's diplomatic action against Pakistan: What to expect if tensions escalate further

Economic Times

24-04-2025

ET Online Indian stocks experienced a slight decline after India took firm diplomatic measures against Pakistan in response to a deadly terror attack in Jammu and Kashmir that claimed 26 lives.
Indian stocks saw a small drop after India took strong diplomatic actions against Pakistan, following a deadly terror attack in Jammu and Kashmir that killed 26 people. As tensions between the two countries rise, the stock market has become a bit more unstable, and investors are keeping a close eye on what happens next.
On Thursday, Indian markets saw a slight decline. By 2:50 pm IST, the BSE Sensex had dropped 300 points to 79,811, while the Nifty50 was below 24,250. While the fall isn't huge, the market is showing signs of caution as investors stay alert to the situation.
Narender Singh, smallcase manager and founder of Growth Investing, explained that the drop in the market is linked to the rising tensions. He said, "The recent decline in Indian stock markets, with the Sensex falling over 200 points and the Nifty dropping below 24,300, is primarily attributed to escalating geopolitical tensions following a deadly militant attack in Jammu and Kashmir that claimed 26 lives."In response to the attack, India has taken some significant steps. India has expelled Pakistani defense advisors, reduced embassy staff in Islamabad, and suspended the Indus Water Treaty of 1960, which is a major water-sharing agreement between the two nations. Also, the border crossing between India and Pakistan has been closed.
These actions have created more uncertainty in the market. Sectors like energy and infrastructure, which are sensitive to geopolitical risks, have seen more volatility. Investors are showing more caution and selling off stocks in response. Singh added, "Sectors sensitive to geopolitical risks, such as energy and infrastructure, have witnessed increased volatility. Heightened tensions have led to risk aversion among investors."
While India's actions are seen as a response to the terrorist attack, there are concerns that things could escalate further. If tensions rise, it could have a bigger impact on the market. Singh also mentioned, "Further actions by either nation could exacerbate tensions, impacting market stability. Government measures to mitigate economic fallout will be crucial in restoring investor confidence."
Looking ahead, experts suggest that the market's future will depend on how the situation develops. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that India's stock market has been performing better than many other global markets. He said, 'Nifty's decoupling from the S&P 500 is striking. While the S&P 500 is down 8.4% YTD, the Nifty is up 2.27%. The resilience of the Indian economy, the expected US slowdown, dollar weakness, and continued FII inflows—Rs 21,263 crore in the last six days—have driven this outperformance of India.'However, he warned that investors should be cautious in the coming days. 'Going forward, the market will be concerned about the timing, nature, and magnitude of India's response to the terror attacks and its consequences. Therefore, investors have to be cautious even while remaining invested,' Dr. Vijayakumar added.International reactions to the situation could also affect market behavior. Singh mentioned, "The trajectory of international diplomatic efforts will likely influence the stability of the situation and, by extension, the markets."
Also Read: Pakistan stock market falls 2% after India suspends Indus Waters Treaty over Pahalgam terror attack India's recent diplomatic actions include several significant decisions:
Suspension of the Indus Water Treaty: India has decided to put the Indus Water Treaty, signed in 1960, on hold with immediate effect.
Closure of the Integrated Check Post at Attari: The main land border crossing between India and Pakistan has been closed, halting all cross-border movement. Those with valid endorsements may return through the route before May 1, 2025.
Suspension of the SAARC Visa Exemption Scheme (SVES) for Pakistani Nationals: Pakistani nationals will no longer be allowed to travel to India under the SAARC Visa Exemption Scheme (SVES). All previously issued SVES visas to Pakistani nationals have been canceled.
Persona Non Grata Declaration for Pakistani Defense Advisors: India has declared Pakistani military, naval, and air advisors at the Pakistani High Commission in New Delhi as persona non grata. These advisors have one week to leave India. India will also withdraw its own defense, naval, and air advisors from Islamabad.
Reduction of High Commission Staff: India plans to reduce the number of personnel at both high commissions to 30 by May 1, 2025.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)