India-Pak conflicts mean 5% dip in Nifty. Will this time be different?

Every time India and Pakistan rattle sabres, Dalal Street dips, but doesn’t dive. Over the past five major conflicts between the two neighbouring countries since 1999, the Nifty 50 has typically fallen about 5% but then stormed back with double-digit returns over the next six months. For all the noise at the border, the markets have mostly stayed signal-focused.

That well-worn playbook is under review again after India launched joint precision strikes on nine terror hubs in Pakistan and Pakistan-occupied Kashmir (PoK), in retaliation for the deadly Pahalgam terror attack that killed 26 civilians. The military action, Operation Sindoor, India’s first such tri-services strike since the 1971 war, sent a tremor through headlines but barely rippled through markets. After a weak open, Sensex and Nifty were back in the green within minutes, unfazed by geopolitics, anchored instead in flows and fundamentals.

But this calm has precedent.

Also read | Surgical strikes, steady stocks: Why Sensex, Nifty aren't flinching after India's strikes on Pakistan

Across the Kargil War (1999), the Parliament attack (2001), the 26/11 Mumbai terror strikes (2008), the Uri surgical strikes (2016) and the Balakot airstrikes (2019), the Nifty’s average maximum drawdown has been just 5.27%. That’s not even correction territory. And in four out of five cases, the index delivered positive six-month returns, with the 1999 and 2008 episodes leading to rallies of over 35%, shows data from Bajaj Broking.

Why don’t these tensions rattle markets more? Because investors are often forward-looking, and unless a conflict escalates into an all-out war or disrupts economic fundamentals—trade, inflation, currency, or capital flows—markets shrug off short-term noise.

“Even in the event of a substantial escalation, we believe the Nifty 50 is unlikely to correct more than 5–10%,” said Anand Rathi, highlighting how current global risk appetite remains resilient. “Investors who have any equity gap in the portfolio should invest now, aligning to the 65:35:20 strategic allocation.”

In the past, the biggest outlier, the Parliament attack in 2001, was also the one with the most global baggage. The 9/11 attacks had just happened, global markets were skittish, and risk-off trades dominated across asset classes. It wasn’t just about South Asia. Similarly, the 2008 Mumbai attacks came in the heart of the global financial crisis, when even good news was being sold.

But in conflicts like Kargil (1999) and Balakot (2019), where tensions were sharp but contained, markets saw them as political or strategic events and not economic disruptions.

Why this time feels familiar

“What stands out in Operation Sindoor is its focused and non-escalatory nature,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit. “The market had already discounted the Indian strike. What’s driving resilience is the Rs 43,940 crore in FII flows over 14 days. That’s where the real support lies.”

What’s also different today is the market's internal composition. Retail investors are more mature. Domestic institutions are sitting on cash. And FIIs—historically spooked by border tensions—are instead pivoting toward Indian largecaps, betting on growth in a world starved of it.

“India’s macroeconomic fundamentals remain robust,” said Devarsh Vakil, Head of Prime Research at HDFC Securities. “Cash-rich mutual funds and steady FII buying are buffering our markets from short-term shocks.”

Also read | Operation Sindoor: Defence stocks rally up to 4% after India targets terror camps in Pakistan, PoK

So… will this time be different?

The only way this playbook breaks is if the conflict crosses a red line—into full-fledged war, into sanctions, or into economic damage. Until then, history suggests this is a buy-the-dip opportunity, not a sell-the-news moment.

Because if Dalal Street has learned anything from history, it’s this: missiles may fly, but markets rise.