Operation Sindoor: Market Impact, Geopolitical Risks, and India–UK Trade Amid Rising Tensions

“Focused, measured, and non-escalatory”: What Operation Sindoor Means for Markets, Trade, and Tensions

India is at a geopolitical and economic crossroads. Operation Sindoor has brought clarity to India’s strategic posture—but uncertainty to the investor table.

Mumbai, 7th May – India launched Operation Sindoor in the early hours of May 7, 2025, executing precision airstrikes on nine terrorist sites across Pakistan and Pakistan-occupied Jammu and Kashmir (PoK). The Ministry of Defence described the strikes as “focused, measured, and non-escalatory,” emphasizing that Pakistani military targets were deliberately avoided to limit escalation. The operation follows the April 22 terror attack in Pahalgam

Rising Tensions and Immediate Fallout
In response, Pakistan’s Prime Minister Shehbaz Sharif called the strikes an “act of war” and closed national airspace for 48 hours. Meanwhile, India suspended commercial flights at northern airports, including Srinagar, Jammu, and Amritsar. The impact on aviation, logistics, and regional mobility has been swift.

While there are no confirmed figures on damage caused, official sources state that the nine targets were linked to terrorist infrastructure.

Market Response: Volatile but Resilient
Equity markets reacted with initial caution but recovered quickly. Gift Nifty suggested a lower opening, but both Sensex and Nifty rebounded shortly after markets opened, showing resilience despite geopolitical stress. Volatility remains elevated, with indices mildly in the red.

The Indian rupee opened 19 paise lower against the US dollar, reflecting risk aversion. Gold prices rose marginally as investors turned to safe-haven assets. Government bond yields remained steady in early trade.

Sectoral Impact
Aviation and tourism have borne the immediate brunt. Airlines including Air India, IndiGo, and SpiceJet have cancelled flights to northern destinations. The tourism industry in Jammu and Kashmir, already affected by the Pahalgam incident, faces further revenue pressure.

Defence stocks have gained traction, buoyed by expectations of increased domestic procurement. Companies in aerospace and electronics have seen a positive uptick in trading since the strikes were confirmed.

Energy markets are on alert. Any disruption to cross-border trade routes or hydropower agreements, such as the Indus Waters Treaty, could impact agriculture and energy supply chains. Crude oil prices have seen mild upward pressure, tracking the regional instability.

India-UK Trade Deal Sealed Amid Tensions
Coinciding with the strikes, India finalised a Free Trade Agreement (FTA) with the United Kingdom, covering around $21 billion in bilateral trade. The deal aims to reduce tariffs and increase Indian exports in sectors like pharmaceuticals, IT services, and textiles, while encouraging UK investments in clean energy and infrastructure.

The FTA provides India with an avenue to diversify trade relationships at a time when regional tensions threaten stability. It could act as a buffer for export-driven sectors and improve long-term investor sentiment.

Bottomline: Cautious but Not Panicked
There has been no sharp pullback from domestic institutional investors. While foreign inflows may temporarily slow due to uncertainty, the broader economic growth outlook remains stable. Market behaviour following past incidents—such as the 1999 Kargil War and 2019 Balakot strikes—suggests that volatility tends to be short-lived unless the conflict escalates significantly.

The outcome of Operation Sindoor, and its impact on the economy, will depend largely on what comes next. If tensions de-escalate, as the Indian government has signalled through its restrained targeting, markets may stabilise quickly.

However, prolonged conflict could strain fiscal resources, elevate inflationary pressures, and disrupt trade in sensitive regions. For now, investors are advised to stay vigilant, focus on large-cap stability, and avoid reactive decision-making.

India’s strategic response has made clear its stance on cross-border terrorism. Whether this operation remains a standalone event or marks the start of a longer standoff will shape the economic narrative in the weeks ahead.