On May 7, 2025, the Indian stock market experienced heightened volatility following military strikes by the Indian armed forces on terror targets in Pakistan and Pakistan-occupied Kashmir (PoK). This operation, dubbed 'Operation Sindoor', targeted nine sites including Jaish-e-Mohammad’s base in Bahawalpur and Lashkar-e-Taiba’s hub in Muridke. The strikes were a retaliatory measure for the recent Pahalgam terror attack that claimed the lives of 26 civilians two weeks prior.
Despite the initial market jitters, benchmark indices Sensex and Nifty demonstrated resilience, quickly recovering from their early declines. By 9:45 AM, both indices were in the green, a surprising turn given the typical investor behavior during military escalations, which usually prompts a flight to safer assets like gold and bonds.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the focused and non-escalatory nature of 'Operation Sindoor' played a significant role in calming market nerves. "What stands out in ‘Operation Sindoor’ from the market perspective is its focused and non-escalatory nature," he stated. He also expressed optimism about the market's ability to absorb potential retaliatory actions, suggesting that such responses were already anticipated and factored into market expectations.
Foreign Institutional Investors (FIIs) have significantly contributed to market stability, with net purchases amounting to Rs 43,940 crore over the last 14 trading sessions. Vijayakumar emphasized that this influx of foreign capital, driven by favorable global conditions and India's relative economic performance, has bolstered investor confidence. "FIIs are focused on global macros like the weak dollar, slower growth in the US and China, and India’s relative outperformance," he explained.
Market analyst Pankaj Singh noted that geopolitical tensions typically induce immediate volatility, as evidenced by the Nifty and Sensex dipping by 0.6–0.8% following the announcement of military operations. However, he highlighted a historical pattern of recovery post-crisis, citing past conflicts where the market rebounded significantly within a year.
In the early hours of trading, the Sensex was down 69.29 points or 0.09 percent at 80,571.78, while the Nifty fell 15.55 points or 0.06 percent at 24,364.05. Approximately 1,640 shares advanced, 1,685 shares declined, and 133 shares remained unchanged. Tata Motors emerged as the biggest gainer, while Sun Pharma was the biggest loser on the day.
Sector performance varied, with the Nifty Auto sector showing strong gains, while the Nifty FMCG sector faced declines. Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, cautioned that the market remains delicately balanced amid potential triggers such as further military escalation, global tariff developments, and the upcoming US Federal Reserve policy announcement.
On the commodities front, crude oil futures climbed as discussions between US and Chinese officials regarding tariff-related issues were reported. Brent oil futures rose to $62.54, reflecting a 0.63% increase, while West Texas Intermediate (WTI) crude futures reached $59.53, up by 0.74%.
The market's mixed sentiment was further complicated by the recent signing of a Free Trade Agreement (FTA) between India and the United Kingdom on May 6, 2025. This agreement aims to enhance bilateral trade by £25.5 billion annually by 2040, with significant tariff reductions on British goods including automobiles and whisky. Gautam Hari Singhania, Chairman of the Raymond Group, hailed the FTA as a strategic enabler for India's economic integration into global supply chains.
As the day progressed, analysts continued to monitor the situation closely. With the US Federal Reserve meeting also taking place, market participants were keen to hear the Fed's assessment of ongoing trade-related risks and its forward guidance. The Fed is widely expected to maintain current interest rates, but the implications of its decisions on market sentiment remain uncertain.
In terms of corporate earnings, several major companies, including Coal India, Dabur India, and MRF, were set to announce their quarterly results on May 7. These announcements are anticipated to provide further insights into the health of the Indian economy amid the current geopolitical climate.
Despite the backdrop of military operations and geopolitical tensions, the Indian stock market has shown remarkable resilience, with analysts urging investors to focus on the fundamentals rather than succumbing to fear. The recent FTA with the UK, coupled with strong foreign inflows, presents a mixed but cautiously optimistic outlook for the Indian economy moving forward.
As the situation continues to evolve, market participants are advised to remain vigilant and consider both short-term volatility and long-term growth prospects. The interplay between geopolitical events, economic policies, and market dynamics will undoubtedly shape the future trajectory of the Indian stock market.
