Bulls steady despite India-Pakistan tensions; midcaps, SMEs under pressure, India VIX surges 3%

Indian stock markets are trading cautiously with mild volatility as geopolitical tensions intensified following India’s launch of “Operation Sindoor.” The operation targeted nine terror camps in Pakistan, launched in retaliation for the April 22 Pahalgam attack that killed 26 people.

The Sensex opened above the 80,000 level and is currently trading near 80,600, while the Nifty is hovering close to 24,370. In a special briefing, the Foreign Secretary confirmed that the objective of Operation Sindoor was to “dismantle terror infrastructure” operating from within Pakistan.

The benchmark Nifty 50 and Sensex traded in a tight range, holding on to most of their recent gains. However, weakness persisted in the mid and smallcap segments. The Nifty Midcap 150 and Nifty Smallcap 250 indices dropped further after falling over 2 per cent on Tuesday. The BSE SME IPO Index remained deep in the red, down over 20 per cent in calendar year 2025.

Investors continued to exit high-beta and speculative names, especially in the SME segment. According to Ace Equity, nearly 80 per cent of SME stocks are in the red, with over 50 per cent down more than 20 per cent this year. Names like NPR Finance, Radhika Jeweltech, and AA Plus Tradelink are among the biggest losers, with declines of over 60 per cent.

While cross-border military action triggered a knee-jerk reaction on Dalal Street, analysts suggest the selloff is more a reflection of pre-existing sectoral froth and not a panic-induced collapse.

Historical pattern suggests resilience

Market veterans point out that India’s markets have historically rebounded from geopolitical shocks. “Except for the Parliament attack in 2001, all major incidents have seen markets bounce back with healthy medium- to long-term returns,” said a strategist.

The possibility of a full-scale war is also viewed as low. “As long as escalation is avoided, India’s economic momentum remains intact,” he added.

What lies ahead

The current caution is largely tactical. Investors are seeking clarity and reassessing risk amid ongoing developments. However, stability in macros, strong FPI inflows, and the government’s calibrated approach are expected to support sentiment.

“Markets reward strategic decisiveness and national security assurance,” said another expert. With no signs of panic-selling in frontline indices, it’s clear that D-Street is watching, but not fleeing.

For now, volatility may linger but the long-term story remains unchanged.