Domestic stock markets will likely go through a brief correction amid the current tensions between India and Pakistan as past instances suggest, Jefferies said. But it did not rule out sharp losses either, as a fallout of unprecedented escalation.
In the wee hours of Wednesday, India hit nine terror bases in Pakistan in retaliation to the deadly terrorist attack in Pahalgam, Kashmir, on April 22, the Ministry of Defence said in a release.
The geopolitical tension between India and Pakistan hit tourism, industrial, and high-beta stocks. Jefferies has reduced weightage on tourism and industrials in their portfolio. In case of a flare up, infrastructure near the India and Pakistan border would be affected, raising worries for industrial companies.
Jefferies cited two instances of Indo-Pakistan conflicts over the last decade. In September 2026, India conducted a surgical strike after an attack on the army brigade headquarters near Uri. In February 2019, following an attack on a convoy of Indian soldiers in Pulwama, the Indian Air Force responded with an airstrike on Balakot, Pakistan.
In the above mentioned instances, India took measured responses which makes the case for the same response in the Pahalgam attack.
Jefferies, however, did not entirely rule out the potential of the situation escalating, with the government conducting drills across the country to prepare civilians for military action by Pakistan. India has suspended the Indus Water Treaty, which is a major source of water for Pakistan. So far, Pakistan has responded with cross-border firing, resulting in the death of 15 civilians.
NSE Nifty 50 and BSE Sensex recovered losses in the second half of Wednesday's trade, despite the rising tensions. The indices ended 0.14% and 0.13% higher, respectively.
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