Will Operation Sindoor Shake Up India's Finance Industry?

After the cowardly attack on Indian citizens in Pahalgam, the government of India launched 'Operation Sindoor', on May 7, 2025, as a targeted military response. This has had multifaceted effects on India's financial markets. Here's an analysis of its impact on the financial sector in India.

Immediate Market Reaction: Minimal Disruption

Contrary to typical market volatility during geopolitical tensions, Indian stock indices exhibited resilience:

• Nifty 50 and Sensex experienced brief declines but quickly rebounded, indicating investor confidence in India's economic fundamentals. On 07th May, the market experienced initial volatility but managed to recover before the closing bell, indicating investor confidence in the market's resilience. By May 9, the Sensex had dropped 880 points, settling at 79,454.47, while the Nifty 50 closed at 24,008, reflecting a 1.10% decline. Sensex reaction to military strikes is also quite similar.
• The Indian Rupee depreciated by approximately 1.1% since the operation's onset, reflecting cautious investor sentiment.The INR weakened slightly against the US Dollar, falling to ₹84.10/USD, before stabilizing due to strong forex reserves Despite typical market instability during geopolitical tensions, Indian stock indices showed resilience. The Nifty 50 and Sensex briefly fell but quickly recovered, suggesting investor confidence in India's economic foundation. For instance, on May 7th, the market initially fluctuated but recovered by closing, demonstrating resilience. By May 9th, the Sensex decreased by 880 points to 79,454.47, and the Nifty 50 closed at 24,008, a 1.10% drop. The Sensex's response to military actions has been similar.

Defence Investment Surge: Sectoral Shifts

The defence sector witnessed significant investor interest:

• Defence-oriented mutual funds reported one-month returns between 13.67% and 18.75%, driven by heightened focus on domestic defence manufacturing and government policies promoting self-reliance.
• Private defence companies, such as Tata Advanced Systems and Paras Defence, gained attention for their roles in indigenous military technology development.

Fintech & Banking: A Need for Cautious Monitoring

Although not directly affected by the operation, the banking and fintech sectors are under a cloud of caution due to:

Geo-political risk pricing by foreign investors.

Possible rise in cross-border compliance and cyber-risk scrutiny.

Increased focus on defensive investing (i.e., moving money into safer assets or low-volatility sectors).

Despite this, strong fundamentals have allowed banks like SBI, HDFC, and ICICI to maintain stability.

Gold and Crude Oil

Gold prices experienced a short-lived 2% increase due to investors seeking a safe haven asset, but quickly returned to normal. Crude oil prices remained stable as the operation did not disrupt energy supply chains or involve significant global actors.

Summary of Market Impact

Investor Guidelines: Dos and Don'ts

Stay Informed - But Not Panicked

• Follow credible financial news and government updates.

Portfolio Rebalancing

• Consider increasing investment in defensive sectors such as Defence & Aerospace, FMCG, and Utilities.
• Consider reducing exposure to highly cyclical or risky sectors temporarily.

Invest in Gold or Safe-Haven Assets

• To mitigate volatility, consider allocating a small percentage (5-10%) of your portfolio to gold, sovereign gold bonds, or gold ETFs.

Use Market Dips Wisely

• Consider any temporary market downturn as a chance to buy, particularly shares of well-established or financially sound businesses.

Diversify

• Diversify your investments across different sectors and asset classes. Consider allocating funds to equities, debt funds, gold, and international ETFs to mitigate risk.

Review SIPs but Stay Committed

• Maintain your mutual fund Systematic Investment Plans (SIPs). Long-term, market volatility benefits your investments through rupee cost averaging.

Operation Sindhoor: Important Investor Precautions - Don'ts

Avoid making emotionally driven decisions.

Don't react impulsively to news headlines by selling or buying. Geopolitical events typically lead to short-lived fluctuations rather than lasting negative impacts.

Don't Chase Hot Stocks Blindly

Defence stocks are rising-but don't enter purely on hype. Check fundamentals, order books, and valuations.

Avoid Complete Market Exit

Holding onto cash due to fear could cause you to miss potential gains from a market recovery. Historically, Indian markets have demonstrated a swift rebound following significant events.

Avoid Over-Leverage:

Due to potential market volatility that could erase profits with unfavorable moves, it is advisable to avoid significant margin or loan positions.

Do not Rely on Rumours

Be wary of misinformation and speculation on social media. For factual information and analysis, consult SEBI-registered advisors or trustworthy sources.

Indian Market Response to Previous Wars & Military Conflicts