India-Pakistan War – Market falls 

The escalating India and Pakistan war in 2025 has created a shockwave in both nations, weather it is civilian societies or financial markets both getting severely effected due to war. As they say “war is never without consequences”, but it shows impact on the stock market immediately. As investors grow wary of geopolitical instability, stock indices, specific sectors, and currencies in both nations have shown signs of stress and unpredictability.

1. Nifty and Sensex Took a dive

On May 9, 2025, Indian benchmark indices reflected sharp losses as the Nifty 50 fell by 1.18%, ending at 23,983.3, while the BSE Sensex dropped by 1.12% to 79,443.08. These numbers represent a sudden loss of investor confidence triggered by cross-border tensions, particularly after reports of drone and missile activity from Pakistan’s side.

2. Surge in Volatility Index (VIX)

India’s Volatility Index (VIX) shot up to its highest level in over a month. This index measures market fear and uncertainty. A high VIX indicates that investors are preparing for sharp swings in the market, often due to geopolitical or economic stress. The war rhetoric between India and Pakistan has clearly unsettled financial sentiment.

3. Rupee Weakens Against the Dollar

Due to  India-Pakistan war Indian currency felt the brunt of the crisis. The rupee weakened by 0.8%, closing at ₹85.59 against the U.S. dollar. When a country faces external threats, foreign investors tend to withdraw funds, causing a decline in the local currency’s value. A weaker rupee also makes imports costlier, potentially sparking inflation.

4. Spike in Government Bond Yields

The 10-year Indian government bond yield climbed by over 7 basis points to 6.3807%. Rising yields indicate that investors are demanding higher returns for holding onto Indian debt during uncertain times. This adds pressure on the government’s borrowing costs and reflects deepening anxiety in fixed-income markets.

5. Defense Stocks Surge Amid Crisis

Due to India-Pakistan war not all stocks are falling. As demand for defense equipment are rising , Defense-related companies in India are witnessing gains..
Key gainers include:

• Bharat Electronics Ltd (BEL): rose 3.4%

• Hindustan Aeronautics Ltd (HAL): gained 2.1%

These stocks are benefitting from anticipated increases in defense spending, given the tense border situation. Investors are betting on long-term government contracts and policy support to bolster national security.

6. Pakistani Stock Market Also Under Pressure

Across the border, the Karachi Stock Exchange (KSE 100 Index) is also witnessing volatile trends. Historically, any rise in military tensions has resulted in negative returns on the KSE. While exact figures from May 2025 remain volatile, past data indicates up to 4% single-day drops during similar conflicts.

The sectors most affected in Pakistan include banking, energy, and consumer goods, with investors rushing to safer assets or pulling out capital altogether.

7. Global Investor Sentiment Turns Cautious

Foreign Institutional Investors (FIIs), crucial for both Indian and Pakistani markets, have begun reducing exposure to South Asia. Geopolitical instability is a major red flag for international investors. Any prolonged conflict risks triggering a capital flight, weakening financial infrastructure, and damaging economic growth forecasts.

Conclusion

Geopolitical tensions between India and Pakistan are not new, but their financial implications in 2025 are especially stark. Indian stock indices are falling, the rupee is weakening, bond yields are rising, and even the relatively stable Pakistani market is rattled. While defense stocks are momentarily thriving, the broader market is under clear threat.

Both nations risk significant long-term economic damage if the situation escalates. Investors must stay informed, diversify their holdings, and closely monitor global developments before making further commitments. Healthyfinancier.com