On Friday, the Indian stock market faced a significant downturn, losing its early momentum as geopolitical tensions between India and Pakistan intensified following a tragic attack in Pahalgam, Kashmir, which resulted in the deaths of 26 individuals. The Nifty 50 index dipped 1.52%, settling at 23,879.20, while the Sensex experienced a decline of 1.35% to reach 78,726.39. Market volatility was reflected in the VIX, which surged nearly 6% during the morning session.

Market Reactions to Rising Tensions

Initially, the Indian markets showed promise, buoyed by positive global trends. The Nifty climbed 0.49% to 24,365.45, and the Sensex gained 0.41%, reaching 80,130.66. However, as news of escalating tensions emerged, most sectors turned bearish, with the Nifty Defence index suffering a nearly 3% drop, primarily driven by losses from Garden Reach Shipbuilders. Broader market indices also saw declines of over 2%, trailing behind the benchmark indices.

Government Responses and Countermeasures

The Indian government is responding to the Pahalgam attack with stringent measures, including pausing the Indus Water Treaty and revoking visas for Pakistani nationals. In retaliation, Pakistan has closed its airspace to Indian flights, emphasizing the rising stakes in this ongoing conflict.

Profit-Taking and Mixed Sentiments

Market analysts attribute this correction to a combination of profit-taking following a prolonged uptrend, mixed signals from global markets, and cautious investor sentiment amid ongoing corporate earnings reports. Mandar Bhojane, an equity research analyst, noted that investor reactions were influenced by both domestic and international developments, highlighting the significant impact on the banking index, particularly from Axis Bank.

Global Market Comparison

In contrast to the downward trend on Dalal Street, global markets exhibited a more positive outlook. During Friday’s morning session, Asian markets showed resilience, and U.S. stocks experienced a third consecutive session of gains, propelled by a robust performance in the tech sector. Investors are also optimistic about potential Federal Reserve rate cuts, alongside favorable earnings results from technology giants such as Alphabet Inc..

Foreign Investment Trends

Interestingly, foreign institutional investors have remained active, purchasing equities worth Rs 8,250.53 crore on Thursday, indicating continued confidence in the Indian market despite recent challenges.

Commodities on the Rise

In the commodities market, Brent crude oil prices rose by 0.53%, reaching $66.90 per barrel. Additionally, domestic gold prices surged by Rs 2,000, trading at Rs 96,190 as of 07:14 a.m. This increase reflects growing demand for safe-haven assets amid market uncertainty, with futures for the precious metal on the Multi Commodity Exchange also showing a 1.31% uptick.

The current landscape of India’s stock market highlights the complex interplay between geopolitical tensions and economic performance, emphasizing the need for investors to stay informed about both domestic and global developments.