Tensions between India and Pakistan have once again taken centre stage following the recent terror attack in Pahalgam, Jammu and Kashmir. In response, India launched a strong military operation named ‘Operation Sindoor’, targeting terror camps across the border. This has sparked fresh concerns among citizens and investors alike, raising questions about the potential for escalation and its broader impact.
In times like these, political developments can significantly influence market sentiment and create uncertainty. It is important to take a closer look at how such events affect the real economy, trade, and investment before jumping to conclusions.
Let’s understand what’s happening and what it could mean going forward.
What’s Happening?
India and Pakistan’s relations were already strained due to Pakistan’s continued support for terrorism. The situation worsened after the Pahalgam terror attack on April 22, 2025, which killed 26 people, including 25 Indian citizens and one Nepali tourist. The attack sparked nationwide outrage and heightened tensions between the two countries.
In response, India took several firm actions against Pakistan. These included suspending the Indus Waters Treaty, closing the Wagah-Attari Border, shutting down Indian airspace for Pakistani aircraft, halting trade, and more. Meanwhile, Pakistan responded with some countermeasures that could impact India’s economy or bilateral trade.
14 days after the Pahalgam incident, India carried out a strong military strike. On May 7, 2025, the Indian Armed Forces launched Operation Sindoor, targeting terrorist bases and infrastructure in Pakistan and Pakistan-occupied Jammu and Kashmir (PoK). The aim of the operation was to dismantle terror camps and send a clear message that India will not tolerate terrorism on its soil.
Read More About- Markets vs Missiles: Operation Sindoor Tests Stock Market Nerves
Closure of Attari Border – Is India’s Trade at Stake?
After the Pahalgam terror attack, India closed the Integrated Check Post (ICP) at Attari and halted trade worth Rs 3,886.53 crore. This included exports such as soybean, poultry feed, vegetables, and plastic products.
Trade between India and Pakistan had already been declining due to increasing tensions, especially after the Pulwama attack in 2019. Bilateral trade fell from Rs 4,370.78 crore in 2018-19 to Rs 2,257.55 crore by 2022-23, although it briefly recovered to Rs 3,886.53 crore in 2023-24.
Meanwhile, the total cargo movement between the two countries also declined sharply, with consignments dropping from 49,102 to just 3,827 during the same period. Pakistan’s economy — already grappling with inflation and social unrest — has been further impacted by the border closure.
However, the closure has had a significant effect on Punjab, particularly around Amritsar and Attari, where many depend on cross-border trade for their livelihood. Key exports like straw reapers, once a major item for Pakistan, declined steeply from 1,110 units to just 100 in 2019-20, causing substantial revenue loss for local businesses.
Ind-Pak Flight Suspension – Who Will Lose More?
The closure of Pakistan’s airspace to Indian airlines created considerable financial pressure for Indian carriers, increasing operational costs by around Rs 307 crore per month. Air India alone projected an additional cost of approximately $600 million if the restrictions continued for an entire year.
Extended flight durations have led to higher expenses — about Rs 29 lakh more per flight bound for North America and Rs 22.5 lakh extra for those headed to Europe, factoring in landing, parking, and technical stopovers. Flights to the Middle East are also affected, requiring around 45 extra minutes in the air and raising costs by an estimated Rs 5 lakh per trip. As a result, IndiGo had to suspend services to Almaty and Tashkent due to the airspace restrictions.
While Pakistan’s move was aimed at disrupting Indian aviation, it has backfired by causing significant revenue loss from overflight fees. The absence of Indian flights has impacted Pakistan’s aviation earnings considerably.
This isn’t the first time Pakistan has faced such losses. Following the 2019 Pulwama attack, a similar airspace closure cost Pakistan nearly $100 million, with daily losses of about $3,00,000 from impacted flights, overflight, landing, and parking fees. The total loss during that period was estimated at $100 million, including missed earnings from suspended international routes.
Trade Numbers Between India and Pakistan
India-Pakistan trade has always been limited, and the Pahalgam terror attack has brought it to a complete halt. According to the Federation of Indian Export Organisations (FIEO), trade between the two nations constitutes just 0.06% of India’s total trade. Between April and January 2024-25, India exported goods worth approximately USD 447.65 million to Pakistan, while imports stood at only USD 0.42 million.
However, as reported by Moneycontrol, India’s merchandise exports to Pakistan reached a five-year high of $1.21 billion in 2024, more than double the $530.91 million in 2023 — a 127.21% jump. Meanwhile, Pakistan’s exports to India remain extremely low, creating a large trade surplus in India’s favour.
Pakistan’s exports to India have sharply declined, from $547.47 million in 2019 to just $0.48 million in 2024. This drop is largely due to India’s decision in 2019 to impose 200% customs duties on Pakistani goods and revoke Pakistan’s Most Favoured Nation (MFN) status following the Pulwama attack.
India-Pakistan Trade via Third Countries
Despite the official suspension of direct trade, a significant volume of Pakistani goods continues to enter the Indian market through third countries. According to The Times of India, goods worth around $500 million are being rerouted via nations like the United Arab Emirates (UAE), Singapore, Indonesia, and Sri Lanka. These intermediary countries repackage and relabel the goods to mask their origin and enable their entry into India.
The range of products involved in this indirect trade is wide — dry fruits, dates, leather, textiles, chemicals, soda ash, and rock salt. For instance, fruits and textiles are typically repackaged in the UAE, chemicals transit through Singapore, and cement or textile raw materials come via Indonesia.
Sri Lanka also plays a role in processing and distributing items like dry fruits and leather products, leveraging the South Asian Free Trade Area (SAFTA) agreement.
Read More About- Kargil to Pahalgam: An Analysis of India’s Market Response to Conflict
J&K’s Tourism Setback After Pahalgam Attack
The Pahalgam attack was not just an attack on tourists — it struck at the heart of Kashmir’s economy. Tourism supports the livelihood of nearly 2.5 lakh people and contributes Rs 12,000 crore annually, making up around 7% to 8% of Jammu & Kashmir’s GDP.
The incident occurred at the start of the tourist season, which runs from April to October, and may disrupt crucial sectors like hospitality, transport, and handicrafts. Moreover, unemployment — which had decreased from 6.7% in 2019-20 to 6.1% in 2023-24 — could rise again if tourism slows down.
Tourist arrivals had been steadily increasing since Jammu and Kashmir became a Union Territory. In 2020, 34 lakh tourists visited the region, and this number rose year-on-year, reaching 2.36 crore in 2024, including over 65,000 foreign tourists.
This tourism boom also spurred growth in transport, with vehicle registrations increasing from 14.88 lakh in 2017 to 27.29 lakh in 2024. Popular destinations like Gulmarg, Sonamarg, Dal Lake, and Pahalgam had become major revenue generators. But now, the future of this thriving industry faces a serious threat.
Markets at War: Nifty 50 vs KSE 100
The contrasting market reactions to the April 22 terror attack in India’s Pahalgam and the subsequent military retaliation — Operation Sindoor — highlight a stark divergence in investor sentiment between India and Pakistan.
On April 22, India’s Nifty 50 closed at 24,167.25 (+0.17%), while Pakistan’s KSE 100 ended at 1,18,430.35 (+0.04%). On April 23, despite heightened volatility, the Nifty closed in the green, gaining 161.70 points or 0.67%. In contrast, the KSE 100 declined by 1,204.21 points or 1.02%.
Between April 23 and May 6 — spanning the period post-attack but before Operation Sindoor — Nifty dipped a modest 0.88%. Meanwhile, Pakistan’s benchmark index slumped by approximately 4.11%, suggesting mounting investor anxiety amid uncertainty.
Then came May 7 — the day Operation Sindoor was officially announced. While both markets opened lower, the intensity of decline was vastly different. Nifty reversed its losses and ended with a marginal gain of 0.14%, demonstrating resilience and investor confidence. On the other hand, the KSE 100 tanked 5% in early trade and closed the day 3.13% lower, shedding 3,559.48 points to end at 1,10,009.03.
Since April 22, the KSE 100 has lost a cumulative 8,421.32 points, while the Nifty has gained around 247.15 points — clearly reflecting fragile investor sentiment in Pakistan versus robust confidence in India’s economic and geopolitical stability.
How Have Indian Markets Reacted to Past Military Strikes?
India’s equity markets have a history of brushing off geopolitical tensions, especially those involving Pakistan. Here’s a look at some key events:
Kargil War (1999): During the two-month conflict from May 3 to July 26, markets declined only by 0.8%.
26/11 Mumbai Attacks (2008): Surprisingly, the Sensex rose by 400 points and the Nifty by 100 points over the next two trading sessions.
Surgical Strikes (2016): In response to the Uri attack, India conducted surgical strikes across the LoC. The Sensex fell over 400 points and the Nifty by 156 points — but the impact was short-lived.
Balakot Airstrikes (2019): Following the airstrikes on February 26, markets saw brief declines — Sensex down 239 points, Nifty down 44 points. But by the next day, indices stabilised. Even the Pulwama attack had little impact, with markets slipping just 0.2%.
These instances underscore the Indian market’s ability to quickly recover from geopolitical shocks, because of a strong macroeconomic foundation and investor maturity.
What Should Investors Do Now?
Rather than reacting emotionally to geopolitical noise, investors should stay focused on their long-term goals. As history shows, such events usually cause short-term volatility but rarely derail the broader market trajectory in India.
This could be a good opportunity to accumulate fundamentally strong stocks that are available at attractive valuations due to recent corrections.
As V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told India Today, “The market is unlikely to be impacted by the retaliatory strike by India since that was known and discounted by the market”.
What’s Next?
India has completed its retaliatory action. Now the spotlight turns to Pakistan — will it interpret Operation Sindoor as an act against its sovereignty or as a strike against terrorism? That distinction will determine the region’s geopolitical trajectory.
However, even in the worst-case scenario of trade disruptions, India is unlikely to face significant economic consequences. Bilateral trade between the two nations is minimal, and India’s economy remains largely insulated from regional shocks due to its diversified global trade and robust domestic demand.
The recent developments have once again demonstrated the Indian market’s resilience. As the Nifty holds steady and the KSE 100 stumbles, one thing is clear — confidence is a reflection of economic strength, and in this battle of markets, India currently holds the upper hand.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
