Operation Sindoor: Panic or stay put? Here’s what Kotak MF recommends

In the intervening night of May 6–7, India carried out its most expansive cross-border strikes since Balakot, codenamed Operation Sindoor. According to the Ministry of Defence, nine locations in Pakistan and Pakistan-occupied Kashmir (PoK) were targeted in response to the April 22 terror attack in Pahalgam, which killed 26 civilians.

The Indian Army clarified that the operation was focused and restrained, with the intention of avoiding escalation. No Pakistani military facilities were targeted.

The Indian equity market has witnessed two such surgical strikes since 2016 — Uri and Balakot —and their impact on markets has been limited, said Kotak Mutual Fund in its note.
The Uri Surgical strike in 2016 and Balakot airstrike in 2019 have seen the domestic equity market staying rangebound on the day of strikes and delivering one-year returns of 11.3% and 8.9%, respectively, following the strikes.

The government’s measured action suggests a low possibility of full-scale war. However, in the event of a full-blown conflict, Kotak MF noted that since 1950, India has witnessed four major wars.
In the most recent one, the Kargil conflict in 1999, equity markets remained robust after an initial phase of panic.

As per the brokerage, one month before the Kargil war, which lasted from May 3 to July 26, 1999, the Nifty dropped by 8.3%. However, during the war, the index rose by 36.6%. One year after the conflict, the Nifty was up 29.4%.

How the current conflict could play out?

Kotak MF said that in case of a prolonged conflict, markets may correct further, while a limited conflict may have a limited impact and markets may stabilise soon.

“In the past conflicts, while there has been limited impact on growth, we have seen increase in inflation and fiscal deficit,” the broking firm said.

In its note, Kotak MF said that it may not be the right time to panic. It asked investors to avoid knee-jerk decisions and stay invested.

Short-term market swings during geopolitical events are unsettling, but history shows that they rarely derail India’s long term growth story, the mutual fund house mentioned.