Market Wrap: Fag-end selling sends Sensex 412 points lower, Nifty below 24,300 as India-Pakistan tensions escalate

Late selling saw Indian benchmark indices ending lower on Thursday as the standoff between India and Pakistan escalated, with Indian forces neutralising the neighbour's military targets.

The benchmark BSE Sensex declined 411.97 points or 0.51% to close at 80,334.81, while the broader Nifty 50 index closed at 24,273.80, lower by 140.60 points or 0.58%.

The Indian defence ministry said that its forces had "neutralised" Pakistan's attempts to "engage" multiple military targets in the northern and western regions on Wednesday night and Thursday morning.

The market capitalization of all listed companies on the BSE decreased by Rs 5.69 lakh crore to Rs 418.50 lakh crore.

Sector Watch

Financials led the decline on the benchmarks, with the sector falling over 1% as heavyweight HDFC Bank slipped nearly 1%.

Losses deepened after the Ministry of Defence announced that Indian armed forces had targeted air defence radars and systems at several locations in Pakistan on Thursday.

According to the statement, "Today morning Indian Armed Forces targeted Air Defence Radars and systems at a number of locations in Pakistan. Indian response has been in the same domain with same intensity as Pakistan. It has been reliably learnt that an Air Defence system at Lahore has been neutralised."

Pakistan’s military claimed it had shot down 25 Indian drones.

Broader markets also came under pressure, with the Nifty Midcap 100 and Nifty Smallcap 100 falling 2.5% and 1.9%, respectively.

Tata Motors extended its rally for a second straight session, gaining as much as 3.5% intraday on optimism around the proposed India-UK trade deal, the company’s demerger plan, and other bullish triggers. The stock has surged 9% over two sessions and has rebounded nearly 30% from its April low of Rs 542.55.

The strength in Tata Motors helped cushion some of the losses in the auto sector.

Meanwhile, the Nifty Volatility Index has risen in 10 of the last 11 sessions following last month’s militant attacks on Hindu tourists in Kashmir. The index climbed to 21.84 in intraday trade, its highest level since April 9.

Expert View

The Indian equity market experienced profit booking by the end of the trading day due to escalating tensions between India and Pakistan, marked by increased cross-border exchanges, said Vinod Nair, Head of Research, Geojit Investments, adding that the FOMC policy meeting provided little reassurance, as the FED expressed concerns that aggressive U.S. tariffs could fuel inflation and raise unemployment.

"However, the global market remains stable and positive, buoyed by expectations of an imminent U.S. trade deal with the UK and preliminary indications of trade talks with China. Historically, the domestic volatility is expected to neutralize as cross border issue de-escalates," said Nair.

“There is a lot of caution in the markets as investors are worried that the ongoing tension resulting in a major conflict between the two nuclear-powered nations going ahead could spark a major sell-off in equities, and hence profit-taking was seen in almost all the sectors barring select IT counters," said Prashanth Tapse, Senior VP (Research) at Mehta Equities.

Mehta said that with the local currency depreciating sharply amid the ongoing stand-off, foreign investors could flee domestic equities to park their funds in overseas safe-haven assets.

Global Markets

World shares edged higher on Thursday after the U.S. Federal Reserve held interest rates steady, as expected, and flagged rising risks of stagflation.

European stocks opened stronger, with Germany’s DAX up 1% and London’s FTSE gaining 0.3%, buoyed by optimism over a potential U.S.-UK trade deal. Sterling also rose slightly against the euro.

In Asia, Japan’s Nikkei 225 rose 0.4%, Australia’s ASX 200 added 0.2%, South Korea’s Kospi climbed 0.2%, Hong Kong’s Hang Seng advanced 0.4%, and China’s Shanghai Composite gained 0.3%.

Fed Chair Jerome Powell said the central bank was in “a good place” policy-wise, though uncertainty over growth and inflation remains.

U.S. 10-year Treasury yields rose 2 basis points to 4.29%, while Germany’s 10-year yield edged up to 2.48%.

Gold rose 0.3% to $3,374.5 an ounce, supported by lingering uncertainty around the Fed’s outlook, but remained below its $3,500 record high.

Rupee vs Dollar

The Indian rupee slumped on Thursday, posting its sharpest single-day drop in over two years amid heightened tensions with Pakistan. The currency fell 1% to close at 85.71 against the U.S. dollar—its worst performance since February 2023—after touching an intraday low of 85.7625.

Meanwhile, the dollar index, which measures the greenback against a basket of six major currencies, rose 0.46% to 100.07.

Crude Impact

Oil prices climbed 1% on Thursday, lifted by optimism over a potential breakthrough in upcoming U.S.-China trade talks, which could boost demand from the world’s top two oil consumers.

Brent crude rose 74 cents, or 1.2%, to $61.86 a barrel, while U.S. West Texas Intermediate (WTI) gained 80 cents, or 1.4%, to $58.87 as of 0912 GMT.

(With inputs from agencies)