Rupee Tumbles, Stocks Slide as India-Pakistan Tensions Escalate

HIGHLIGHTS

• Bernstein sees no major market risk to India from border tensions
• Indian govt has called defence equipment makers to Delhi, says Baba Kalyani
• India VIX soars 11% as market volatility spikes on geopolitical tensions
• NSE denies Reuters report of writing to the government for intervening in its IPO
• Godrej Consumer sees demand revival over next 12-18 months

Indian equities closed down on Thursday as intensifying geopolitical tensions between India and Pakistan triggered a broad-based selloff. The benchmark BSE Sensex and NSE Nifty reversed early gains to end in the red, as news of India targeting military installations, including air defence systems in Lahore, unnerved investors.

The Defence Ministry confirmed that the strikes were in response to Pakistan’s attempted attacks on military bases in northern and western India. The rising risk of escalation prompted traders to reduce exposure across sectors, particularly in high-beta counters.

Market breadth was deeply negative, with the advance-decline ratio slipping to 1:3, highlighting widespread selling across the board. Volatility surged, with the India VIX—a key measure of market fear—soaring over 10% to close at 21.01, breaching the 20-mark for the first time in recent weeks.

Sectoral Performance
Only IT and media managed to close in positive territory, reflecting relative investor preference for defensives and export-oriented plays. On the flip side, metals, oil and gas, pharma, PSU banks, auto, consumer durables, and real estate sectors saw declines of 1–2%, dragging down the broader indices.

Top Gainers	% Change	Top Losers	% Change
NIFTY IT	0.23%	NIFTY REALTY	-2.47%
NIFTY MEDIA	0.20%	NIFTY METAL	-2.09%
		NIFTY HEALTHCARE INDEX	-1.95%
		NIFTY AUTO	-1.90%
		NIFTY PHARMA	-1.62%

Indian government bond yields jumped on Thursday amid panic selling, and broke past a key technical level as escalating tensions with Pakistan rattled investor sentiment and prompted traders to offload holdings across the curve.

The benchmark 10-year gilts yield ended at 6.3976%, after briefly breaching 6.40%, compared with its previous close of 6.3367%.

India's benchmark bond yield hit a low of 6.3093% early on Thursday before climbing nearly 10 basis points in a choppy session.

The geopolitical conflict is likely to dent Indian debt market's appeal for foreign investors.

Tenure	Today	Previous
10-year Gilt	6.40%	6.34%
5-year gilt	6.13%	6.04%
5-year OIS	5.68%	5.56%

The Indian rupee suffered a steep fall on Thursday, closing at 85.71 per U.S. dollar, down over 1% from the previous session. This marked the domestic currency’s biggest single-day decline since February 2023, driven by rising geopolitical tensions and global dollar strength.

The sharp slide came as markets reacted to escalating conflict between the India-Pakistan.The heightened uncertainty prompted investors to move toward safer assets, pressuring the rupee.

With Thursday’s loss, the rupee has now depreciated by 2.3% over the last five trading sessions, reflecting a clear shift in market sentiment. The potential for further escalation or diplomatic retaliation has added to concerns, raising the possibility of continued volatility in the near term.

Adding to the rupee’s woes was a rise in the US dollar index, which gained after US President Donald Trump hinted at a forthcoming "major trade deal" with a large and "highly respected" country. The comments bolstered the greenback.

Unit	Today	Previous
Dollar/Rupee	85.71	84.83
Dollar Index	99.94	99.44
1-year Dollar/rupee premium (%)	2.14%	2.19%

OUTLOOK
Indian financial markets are likely to remain on edge in the coming sessions, with geopolitical developments between India and Pakistan expected to dictate investor sentiment across equities, bonds, and currency.

Defensive sectors like IT and FMCG are likely to attract interest, while high-beta sectors such as metals, realty, and public sector banks may face further selling pressure. 

The benchmark 10-year yield, having breached the 6.40% mark, may see further upward pressure if tensions persist or foreign investor interest weakens. However, if the Reserve Bank of India steps in to stabilise liquidity or signals reassurance, yields could stabilise near current levels. 

Further depreciation risk persists for the rupee, unless there is a clear de-escalation in cross-border tensions or a decline in global dollar strength. RBI intervention is likely to cap extreme volatility, but traders may remain cautious, especially in the face of potential foreign outflows. 

Key Events & Data Due Friday:

Economic Data

• China April trade data
• AMFI April data
• India weekly forex reserve data

Corporate Actions

• Jan-Mar Earnings:  ABB India, ABM International, Aditya Vision, Alkyl Amines Chemicals, Bank of IndiaBirla Corporation, Cera Sanitaryware, Dhanlaxmi Bank, Dr. Reddy's Laboratories, Eveready Industries India, Grindwell Norton, Intellect Design Arena, Jupiter Life Line Hospitals, K.P.R. Mill, Lloyds Enterprises, Manappuram Finance, Motherson Sumi Wiring India, Navin Fluorine International, Paisalo Digital, Ponni Sugars (Erode), PTC India Financial Services, Raj Oil Mills, Relaxo Footwears, Reliance Power, Selan Exploration Technology, Shakti Pumps (India), Smartlink Holdings, Sutlej Textiles and Industries, Swiggy, Synergy Green Industries, The Great Eastern Shipping Company, Thermax, Tourism Finance Corporation of India, and Tree House Education & Accessories,
• Navin Fluorine International to consider fund raising
• Infibeam Avenues to consider fund raising 
• BEML to consider dividend

Policy Events

• BoE Governor Bailey speaks
• US FOMC Member Williams speaks 
• US Fed Waller speaks