In a highly volatile session, India's equity markets closed lower on Friday as investor sentiment turned cautious amid escalating tensions between India and Pakistan following the deadly terror attack in Kashmir. Profit-booking added to the pressure after a sharp rally in recent sessions.
The benchmark index BSE Sensex was down 588.90 points or 0.74% at 79,212.53, and the NSE Nifty was down 207.35 points or 0.86% at 24,039.35. Broader indices underperformed with BSE midcap and smallcap indices falling 2.5% each.
Benchmarks opened higher but plummeted sharply in early trade, with the Sensex crashing 1,200 points to an intraday low of 78,606 and the Nifty50 tumbling nearly 400 points to 23,848. Market volatility spiked, with India’s fear gauge (VIX) surging 6% on Friday
Vinit Bolinjkar, Head of Research at Ventura, said Pakistan's statement that any interference with the Indus Waters Treaty would be considered an "act of war" has significantly amplified investor concerns, especially in the wake of the Pahalgam incident and India's response.
“This rapid decline in bilateral relations, stemming from the attack, India's retaliatory actions (including the suspension of the Indus Waters Treaty and downgrading diplomatic ties), and Pakistan's reaction, has spurred widespread selling pressure as the potential for a larger regional conflict becomes a growing worry. The increasing India VIX reflects this heightened anxiety and the market's expectation of further negative developments in the India-Pakistan relationship following the Pahalgam attack and India's subsequent steps,” stated Bolinjkar.
Among the sectoral indices, the IT sector showed strength. Most other sectors traded with a negative bias, with Realty, Healthcare & Pharma, Energy, and Metals emerging as the major laggards.
Anand K. Rathi, Co-Founder of MIRA Money, said the recent run up from the bottom was impressive, and many investors are likely looking to book profits, especially considering that Indian markets have outperformed despite global volatility.
He added that while no one wants a war, the uncertainty surrounding the situation raises worries about potential conflict.
“Historical precedents, such as during the Kargil War when the markets dropped by 15% in a short period, highlight how geopolitical tensions can lead investors to exit equity markets. Although we are not experiencing a decline of that magnitude now, the increasing tensions have created an opportunity for investors to pull out of the equity market, which is contributing to the current downturn,” stated Rathi.
Vinod Nair, Head of Research, Geojit Investments, said that mid and small-cap stocks bore the brunt of the sell-off, driven by their elevated valuations and growing concerns over potential earnings downgrades following a muted start to the earnings season. “The risk of the correction continuing in the near term is evident as investors adopt a wait-and-watch stance. However, it is a good time for persistent investors to dip into it, given the resilient nature of the Indian stock market during external & geopolitical volatility,” added Nair.