On the night of May 6, the Indian military executed Operation Sindoor, targeting terror infrastructure across the border in Pakistan and Pakistan-occupied Kashmir (PoK). The operation aimed at dismantling terror camps, including high-profile sites in Bahawalpur and Muridke, which are hubs for notorious terror groups like Jaish-e-Mohammed (JeM) and Lashkar-e-Taiba (LeT). This marked a significant escalation in India’s counter-terrorism efforts, reflecting the government's strong resolve following the brutal murder of 26 unarmed civilians in Pahalgam, Jammu and Kashmir, last month.

Market Reactions to Geopolitical Tensions
In the wake of these strikes, Indian stock markets witnessed a mixed response. The benchmark Sensex initially rose by 0.18% to 80,785 points, while the Nifty 50 fell by 0.21% to 24,418 points, reflecting investor uncertainty. This response highlighted the fragile balance between geopolitical risks and economic fundamentals in India. Market analysts, like Prashanth Tapse from Mehta Equities, noted that three key developments would drive the market in the coming days: the potential for further escalation between India and Pakistan, the progress on global trade tariffs, and the much-anticipated US Federal Reserve’s policy decision.

Rupee Weakness and Speculative Activity
The rupee weakened by 18 paise in the wake of the strikes, as market participants anticipated speculative dollar buying. While the Reserve Bank of India (RBI) is expected to intervene to curb any significant depreciation of the rupee, the currency market saw some turbulence due to investor unease. Experts like Anil Kumar Bhansali from Finrex Treasury Advisors LLP advised investors to stay calm and hedge their positions against dollar fluctuations, as FIIs (Foreign Institutional Investors) might reduce their exposure amid the prevailing uncertainty.

Foreign Institutional Investors Provide Market Resilience
Despite the volatility, foreign institutional investors have continued to show confidence in the Indian market. On May 6, FIIs bought into Indian equities for the 14th consecutive session, a trend that has helped maintain some stability in the face of external pressures. Analysts attribute this resilience to favorable macroeconomic conditions, including softening crude oil prices, easing inflation, and the RBI’s accommodative stance. These factors have provided much-needed support to the Indian markets, even as geopolitical risks loom large.

Conclusion
As India and Pakistan remain in a state of heightened tension, market participants are closely monitoring the situation for any signs of further escalation. However, as long as retaliatory military actions remain limited and the RBI continues to support the currency, market volatility is expected to remain contained. The next few days will be crucial for the markets, with the US Federal Reserve’s interest rate decision and global trade developments likely to play a pivotal role in shaping investor sentiment.

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