The terror attack in Jammu and Kashmir's Pahalgam by Pakistan-linked terrorists caused jitters in the Indian equity market. The benchmark NSE Nifty 50 shed 0.8% this week, while the BSE Sensex gave up 0.84%.
An analysis by brokerage Anand Rathi based on historical precedents, including four major India-Pakistan confrontations since the Kargil War, shows Indian stocks briefly reacting negatively to conflicts.
"Except during the Parliament attack in 2001, Indian equity markets did not correct more than 2% during periods of high tension with Pakistan," the study stated in its report 'India-Pakistan Conflict - Possible Impact on Indian Equities'.
During the Parliament attack, the stock markets had crashed nearly 14% between Dec, 13, 2001 and Oct. 1, 2002.
Even then, the correction was likely driven more by global factors, particularly the about 30% decline in the S&P 500 around the same period, the research firm pointed out.
The 2016 Uri attack, which was followed by India's surgical strikes in Pakistani territory, caused the markets to fall by 2.1% between Sept. 18 and Sept. 29 that year.
The Balakot airstrike in Pakistan-occupied Kashmir by the Indian Air Force following the Pulwama terror attack in 2019 caused the markets to fall by 1.8% between Feb. 14 and March 1.
The Kargil war saw the least impact on the Indian markets, as the period between May 3 and July 26 in 1999 witnessed a correction of only 0.8%.
Anand Rathi Research projected the Nifty would unlikely to correct more than 5–10% even if there is a substantial escalation in conflict between India and Pakistan.
Following the terror attack, India announced the suspension of the Indus Water Treaty with Pakistan, and has prohibited the issuance of visas to Pakistani nationals. Both the countries have also downgraded their diplomatic ties.
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