📰 Overview: A Market on Edge After the Pahalgam Terror Attack
Pahalgam Effect on Markets: The Indian stock market is walking a tightrope as investors digest the implications of the Pahalgam terror attack. While the initial response has been relatively muted, experts warn that a significant escalation in military or diplomatic response could rattle market sentiment.
So far, the Nifty 50 has remained flat to slightly negative, suggesting that investors are in “wait and watch” mode. The uncertainty is growing, and with stretched valuations and mixed earnings, the market’s near-term direction remains cloudy.
🧭 Market Reactions: Measuring the Immediate Fallout
Industry veterans are closely watching how the government responds.
“Currently, the market doesn’t seem worried about military retaliation. If it remains contained, there may be no major market risk,”
— Prashant Khemka, Founder, White Oak
However, Samir Arora of Helios Capital cautions that any sharp escalation could make all calculations meaningless.
“You can never be prepared for such an event.”
For now, investors are treading lightly, absorbing news and refraining from major bets until the geopolitical picture becomes clearer.
📊 Banks: Rally Driven by Liquidity, But How Long Can It Last?
Since April 9, the markets have rebounded sharply:
- Nifty 50 is up 8.1%
- BSE Midcap Index has gained 10.2%
- BSE Smallcap Index has jumped 10.9%
Banks have been the primary drivers of this rally, contributing nearly one-third of the 1,850-point surge in the Nifty. The reason?
- ₹5 lakh crore liquidity injection
- Safe-haven buying
- Short-covering in banking stocks
However, Sushil Kedia warns this rally may not be sustainable:
“The counter is hollow… a leg down is warranted.”
Now that short positions have been mostly covered, further upside may be limited without fresh triggers.
🌍 Foreign Investor Flows: A Tactical Shift, Not a Structural One
Despite geopolitical tensions, FIIs have bought nearly $3 billion in the last 7 sessions. But for April as a whole, they remain net sellers (~$550 million).
According to analysts, this buying is not driven by confidence in Indian fundamentals but by tactical shifts from the U.S. due to rising policy risks abroad.
“Fund flows can be quite fickle. What matters more is earnings and valuation.”
— Head of Equities, Foreign Brokerage
📉 Earnings Picture: Growth Is Slowing Across the Board
Q4FY25 earnings are offering little comfort to investors:
- Operating profit rose just 6% YoY — lowest in 5 quarters
- Net profit growth slowed to 6%, from 12% in Q3FY25
- Net sales rose 5.5% YoY, the weakest in 3 quarters
⚠️ Sector-wise Snapshot:
- IT majors like Infosys, TCS, and Wipro posted sequential revenue declines
- FMCG players such as Hindustan Unilever and Nestle India struggled with input cost pressures and muted demand
Even though IT stocks have seen a short-lived rebound, analysts argue it’s based more on relative valuation than strong fundamentals.
“Buying single-digit growth at 25x P/E is better than buying the same growth at 45x in FMCG,”
— Sales Head, Domestic Brokerage
📊 Key Financial Snapshot: Indian Market Metrics
| Metric | Value / Observation |
|---|---|
| Nifty 50 YTD Gain | +8.1% |
| BSE Midcap Index YTD Gain | +10.2% |
| BSE Smallcap Index YTD Gain | +10.9% |
| Banking Sector Weight in Nifty | 22% |
| Liquidity Boost to Market | ₹5 Lakh Crore |
| FII Inflows (Last 7 Sessions) | $3 Billion |
| FII Net Position for April | -$550 Million |
| Q4FY25 Operating Profit Growth (YoY) | +6% |
| Q4FY25 Net Profit Growth (YoY) | +6% |
| Q4FY25 Net Sales Growth (YoY) | +5.5% |
| FMCG Sector Avg. P/E | ~45x |
| IT Sector Avg. P/E | ~25x |
🔮 What’s Next? A Market at a Crossroads
As things stand, two clear scenarios emerge:
✅ Best-Case Scenario: Consolidation
If India’s response is measured and regional, markets may continue to consolidate. Investors could focus more on earnings recovery and macro stability.
❌ Worst-Case Scenario: All Bets Off
A full-blown escalation or retaliation could cause severe risk aversion, pulling down valuations and foreign flows in a hurry.
❓ Q&A: Quick Insights for Smart Investors
Q1: Why are Indian markets nervous after the Pahalgam attack?
A: Investors are uncertain about the potential scale of military retaliation. Any escalation could severely impact market sentiment.
Q2: Are banks a safe bet right now?
A: Banks led the recent rally due to liquidity and short-covering, but analysts caution that without fresh triggers, a correction is possible.
Q3: What is the state of FII flows?
A: FIIs have bought heavily in recent sessions, but they remain net sellers for April, indicating the inflows are likely short-term in nature.
Q4: How are Q4 earnings shaping up?
A: Earnings are moderating. Profits and sales have grown at the slowest pace in several quarters, raising concerns about stretched valuations.
Q5: What’s the overall outlook for the market?
A: If the conflict is contained, markets may consolidate. But if geopolitical tensions worsen, expect sharp volatility and potential downside.
For more market insights, follow our news.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resource like MoneyControl, ET, NSE India.