India’s recent military strikes against Pakistan have not deterred investors from maintaining optimism about the nation’s economic growth prospects. The January 31, 2016, militant attack in Pahalgam, Jammu and Kashmir, killed 26. In return, India has conducted a military operation that has garnered high-level international attention. As tensions soar on all sides, the Nifty 50 and BSE Sensex benchmark indices have been remarkably resilient. This stability is a sign of robust investor confidence in India’s economic trajectory.
Johanna Chua, the global head of emerging market economics at Citi, noted that investors remain deeply committed to the “India story.” Their support is undiminished. Her sentiments are indicative of a broader bullish market outlook. New geopolitical tensions may introduce temporary uncertainty but in time will not overshadow India’s long-term growth prospects.
The upcoming military operation would be unprecedented in its scope and scale, far exceeding actions taken in 2016 and in 2019. This begs the question of potential retaliatory steps on Pakistan’s part. Policy analysts Tom Miller and Udith Sikand noted in a recent blog post that, “Conditions along the border continue to be very dynamic. Unlike 2016 or 2019, the nature, scope, and scale of India’s military action this time around is unprecedented. That, in turn, means that Pakistan should expect to be under stricter pressure than ever to produce a ‘proportionate’ counter-response.”
Even with these geopolitical headwinds, Indian financial markets showed remarkable resoluteness. The Indian 10-year benchmark government bond yield fell modestly to 6.339%. Bond yields oscillated in a tight band of just 15 basis points. The Indian rupee depreciated 0.33%, ending at 84.562 per US$. This fall reflects a greater depreciation of Asian currencies in general.
Darren Tay, head of APAC country risk at BMP, wants investors to remain bullish on India. He wants them to know that recent military strikes shouldn’t shake their confidence. He said, “The current increase in crossfire is a lot fiercer than what we experienced back in 2019. Ultimately, we think it will be short-lived and will bring de-escalation within a few months.”
Market analysts also pointed out India’s strategic location in global trade.… Radhika Rao, a senior economist at DBS Bank perhaps India will be one of the first countries in the region to clinch a bilateral trade deal with the United States. She hopes this can come about as soon as well before the start of the third quarter of 2025. India recently concluded a free trade agreement with the United Kingdom. This move is a huge step forward to increasing its global trade partners.
Kranthi Bathini, director of equity strategy at WealthMills Securities, urged caution in the near term, warning about likely market volatility. He stressed that a broader escalation would have a negative impact on investor sentiment. A limited response could have only a minor impact on market outcomes. The fundamental question is whether or not this escalates into a broader fighting scenario or is just a broader defense-reaction strike,” he said.
Market watchers point to India’s increasing structural reforms and strong domestic demand as the main ingredients keeping investors engaged. Mohit Mirpuri stated, “Structural reforms, resilient domestic demand, and strong macro fundamentals continue to offer a compelling case,” adding that while investors may take a momentary pause due to geopolitical uncertainties, it will not derail India’s trajectory as a significant allocation in emerging markets.