Geopolitical Worries Hit Rupee; Equity, Bond Markets Shake Off Early Jitters

The Indian rupee weakened by 40 paise on Wednesday, marking its steepest single-day decline in over a month. The fall was triggered by heightened geopolitical tensions after India conducted targeted military strikes on terror infrastructure in Pakistan and Pakistan-Occupied Kashmir.

In the early hours of the day, Indian armed forces launched “Operation Sindoor,” striking nine terror-linked sites in response to the recent Pahalgam attack that claimed 26 civilian lives. The military described the operation as “focused, measured, and non-escalatory,” emphasizing that civilian and official military facilities were deliberately avoided. However, the scale and timing of the strikes have raised regional tensions, weighing heavily on investor sentiment and the rupee's stability.

The rupee’s decline reflects market anxiety over potential escalation and its broader impact on foreign capital flows. Currency traders are expected to remain cautious in the coming sessions, with bullish positions on the rupee likely to be reduced amid uncertainty.

The rupee is likely to keep facing intermittent pressure depending on how the situation evolves, and in the near-term, bullish bets on the Indian currency could be scaled back while the Reserve Bank of India is expected to step in to limit sharp swings.

Investors await the Federal Reserve's policy decision due later in the day. No changes to benchmark interest rates are expected.

Indian equity markets closed higher on Wednesday, overcoming early volatility triggered by heightened geopolitical tensions.  After a slight weaker start, investor confidence improved through the day, aided by strong buying in banking and automobile stocks. The Nifty 50 ended in positive territory, reflecting a resilient market response to geopolitical developments that were perceived as measured and strategic.

The Nifty Auto index emerged as the top sectoral performer, supported by renewed investor interest in Tata Motors. Banking stocks also staged a recovery after Tuesday’s sharp sell-off, with the Nifty Bank index regaining ground. The strength in these key sectors helped lift overall sentiment and offset broader concerns about regional stability.

Top Gainers	% Change	Top Losers	% Change
NIFTY AUTO	1.66%	NIFTY FMCG	-0.52%
NIFTY CONSUMER DURABLES	1.18%	NIFTY HEALTHCARE INDEX	-0.35%
NIFTY REALTY	1.12%	NIFTY PHARMA	-0.33%
NIFTY MEDIA	1.06%
NIFTY METAL	0.98%

Indian government bond markets showed resilience on Wednesday, with muted reaction to rising geopolitical tensions. The benchmark 10-year gilts yield eased marginally by one basis point as investors assessed the cross-border military developments with guarded optimism.

Traders had initially anticipated a sharper spike in yields—potentially touching 6.40%—following India’s targeted strikes on terror camps in Pakistan and Pakistan-Occupied Kashmir. However, strong buying interest, particularly from state-owned banks, helped cap any upward movement. 

Tenure	Today	Previous
10-year Gilt	6.34%	6.35%
5-year gilt	6.04%	6.08%
5-year OIS	5.56%	5.62%

While the absence of immediate escalation has lent a layer of comfort, the potential for retaliatory action or diplomatic strain could easily rattle nerves. Volatility remains the overarching theme, with market participants treading cautiously, eyes trained on cross-border developments.

OUTLOOK
While the resilience ibn equity and bonds market reflects investor confidence in the Indian government's controlled approach, caution continues to dominate sentiment. Any signs of retaliation or diplomatic backlash from Pakistan could swiftly unsettle the financial markets.

Volatility remains a key risk factor, and traders are expected to stay closely tuned to further developments along the India-Pakistan border. 

Meanwhile, global investors are also closely watching the US Federal Reserve’s policy decision due later today. While no rate hike is expected, the Fed’s forward guidance could influence dollar strength and, by extension, the rupee's short-term direction. Overall, the rupee is likely to remain sensitive to both geopolitical headlines and global monetary cues in the near term.

Key Events & Data Due Thursday:

Economic Data

• Germany March Industrial Production Data
• US weekly Initial Jobless Claims

Corporate Actions

• Jan-Mar Earnings:  Larsen & Toubro, Asian Paints, Titan Company, Aarti Industries, Aditya Birla Real Estate, Bharat Forge, Biocon, Britannia Industries, Canara BankCeigall India, Chambal Fertilizers & Chemicals, D.B.Corp, DIC India, Dilip Buildcon, EPL, Escorts Kubota, GHCL, GTL Infrastructure, Hindustan Construction Company, IIFL Finance, Jindal Stainless, Kalyan Jewellers India, Kamdhenu Ventures, Maral Overseas, Medico Remedies, Muthoot Microfin, Pidilite Industries, R Systems International, Rain Industries, REC, Southern Petrochemicals Industries Corporation , Sula Vineyards, Suryoday Small Finance Bank, Union Bank of India, Vesuvius India, Zee Entertainment Enterprises,

Policy Events

• BoJ Monetary Policy Meeting Minutes
• German Buba Balz Speaks 
• BoE Interest Rate Decision