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Below the Quote on Markets by Mr. Vikram Kasat, Head - Advisory, PL Capital - Prabhudas Lilladher

Geopolitical Disruptions and Market Reaction

The operation has escalated geopolitical tensions, with Pakistan's response including a 48-hour airspace closure. This has led to the suspension of commercial flights from Srinagar, Jammu, and Amritsar, severely impacting logistics and mobility. Such disruptions add to the uncertainty surrounding India's immediate economic outlook.

What About the Stock Markets?

Initial Market Reaction: Indian markets showed initial volatility but quickly recovered, with both Sensex and Nifty erasing early losses.

Defence Stocks: Companies like Bharat Electronics, Hindustan Aeronautics, and Paras Defence have seen strong buying interest, as investors anticipate increased defence spending.Indian Rupee: The rupee weakened, opening 19 paise lower against the US dollar, reflecting the uncertainty around global trade and geopolitical risks.

Conflict & Market Recovery: A Pattern Repeats

History shows that geopolitical flare-ups typically trigger knee-jerk reactions, but markets often recalibrate quickly. During the 1999 Kargil War, the Sensex slid nearly 5% in the early weeks but bounced back as stability returned. In 2019, after the Balakot airstrikes, Indian equities dipped marginally before rallying over 7% in the following month, aided by diplomatic de-escalation.

*Sector Performance: Challenges & Opportunities

Challenges:* The aviation sector has faced significant disruption, with major airlines such as Air India and IndiGo cancelling flights to northern cities. Jammu and Kashmir's tourism industry is also likely to see further setbacks in light of the attack and ongoing uncertainties.

Opportunities: The defence sector has benefitted from increased investor interest. Companies like Bharat Electronics, Hindustan Aeronautics, and Paras Defence are poised to see growth due to rising defence budgets and national security priorities.

Bottomline

While short-term fluctuations are expected, India’s market resilience is evident. Investors should consider sectors aligned with government priorities, particularly defence and national security, which are likely to offer opportunities in the months ahead.

On a positive note, India’s recently finalised Free Trade Agreement (FTA) with the UK, valued at $21 billion, promises long-term economic benefits and could provide stability amid geopolitical uncertainty.

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