Synopsis: As fresh global tensions rise and uncertainty spreads across financial markets, Dalal Street finds itself facing another geopolitical test. History shows that wars and cross-border conflicts have repeatedly triggered sharp reactions in the Sensex. But how deep do these shocks go, and how long do their effects really last?
As tensions rise again between Iran, Israel and the United States, global markets are feeling nervous. News of missile strikes, military warnings and possible retaliation quickly affects investor confidence across the world. Dalal Street is no stranger to such moments. Over the years, the Sensex has reacted sharply whenever wars or major geopolitical conflicts have broken out. From Kargil to Ukraine and Gaza, markets have seen sudden falls during the early days of conflict, but they have also shown the ability to recover once the situation becomes clearer.
India-Pakistan Kargil War (1999)
The Kargil War was fought between India and Pakistan from May to July 1999 in the Kargil district of Ladakh, then part of the Indian-administered state of Jammu and Kashmir, along the Line of Control. In India, the conflict was referred to as Operation Vijay, the codename for the Indian military campaign, while the Indian Air Force’s involvement was called Operation Safed Sagar. The fighting began after Pakistani troops, disguised as Kashmiri militants, infiltrated strategic positions on the Indian side of the Line of Control. India responded with coordinated operations by the Army and Air Force to regain these positions. As international diplomatic pressure increased, Pakistani forces eventually withdrew from the occupied areas.
Even before full-scale combat began, financial markets showed signs of stress. In early April 1999, concerns about rising tensions unsettled investors. The Nifty 50 fell 16 percent as news of infiltrations emerged, reflecting a clear risk-off sentiment. Investors moved to cash amid fears of prolonged instability, and media coverage added to market anxiety. This led to a pre-war correction, with markets pricing in worst-case scenarios.
When combat officially began on May 3, 1999, the immediate reaction in the equity markets was negative. On that day, the Sensex opened at 3,380.61, touched a low of 3,363.06, and closed at 3,378.40, marking a decline of 1.58 percent. The Nifty opened at 979.80, fell to a low of 968.25, and ended the session at 970.75, registering a decline of 0.43 percent.
However, as the conflict progressed and outcomes became clearer, investor sentiment improved. From the day the war began on May 3 until the end of July 1999, both the Nifty 50 and the Sensex recorded gains of 34 percent. The rebound suggested that markets had already factored in extreme risks during the initial correction, allowing equities to recover strongly once uncertainty reduced and the situation stabilised.
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Iraq War (20 March 2003 – 2011)
The Iraq War, also known as the Second Gulf War, began on March 20, 2003, and continued until 2011. It started with the invasion of Iraq by a United States-led coalition, which led to the removal of Saddam Hussein’s Ba’athist government. The initial military action included a large-scale “shock and awe” bombing campaign, followed by a ground invasion by coalition forces including the United States, the United Kingdom, Australia, and Poland. Iraqi forces were defeated, Saddam Hussein was captured in 2003 and later executed in 2006.
The invasion was part of the broader war on terror launched after the September 11 attacks. The main justification presented for the war was that Iraq possessed weapons of mass destruction and had links to al-Qaeda. However, the 9/11 Commission later stated that there was no credible evidence connecting Saddam Hussein to al-Qaeda, and no stockpiles of weapons of mass destruction were found. After the initial invasion, the conflict continued as an insurgency against coalition forces and the newly formed Iraqi government. US troops were officially withdrawn in 2011, although the United States re-engaged in Iraq in 2014 under Operation Inherent Resolve as the conflict evolved further.
On the day the war began, March 20, 2003, Indian equity markets reacted positively. The Sensex opened at 3,118.80, touched a high of 3,197.66, and closed at 3,192.93, marking a 2.30 percent rise from the previous close. The Nifty also recorded gains on the same day. It opened at 1,003.45, reached a high of 1,028.90, and closed at 1,025.25, registering a 2.13 percent increase from the previous close.
However, as the conflict continued, market sentiment weakened. From April 8, 2003, the Sensex began to show a downward trend, leading to a near 10 percent correction during the month of April 2003. The Nifty witnessed a similar near 10 percent decline during the same period. Despite this correction, the markets stabilised over the following weeks. By June 2003, the Sensex had recovered back to its pre-war levels, indicating that the initial volatility was temporary and that investor confidence returned as uncertainty reduced.
Russia-Ukraine War (24 February 2022 – Ongoing)
On February 24, 2022, Russian President Vladimir Putin announced a “special military operation” aimed at what he described as the demilitarisation and denazification of Ukraine. He stated that Russia did not intend to occupy the country. However, the invasion that followed was widely condemned internationally. Several countries imposed sanctions on Russia and provided humanitarian as well as military support to Ukraine.
In the early phase of the conflict, Russian forces attempted to capture Kyiv but withdrew in early April after facing strong resistance. By August, Ukrainian forces had regained territories in the north-east and south. In September, Russia declared the annexation of four partially occupied regions, a move that was internationally criticised. Since then, both sides have carried out offensives and counteroffensives, gaining limited territory. The conflict has also extended into Russian territory, including a cross-border offensive into the Kursk region in August 2024. The United Nations Human Rights Office reported severe human rights violations in occupied areas, and the International Criminal Court issued arrest warrants for Putin and other Russian officials. Russia has repeatedly rejected calls for a ceasefire.
Financial markets reacted sharply on the first day of the invasion. On February 24, 2022, the Sensex opened at 55,418, fell to a low of 54,383.20, and closed at 54,529, marking a decline of 4.72 percent from the previous close. The Nifty opened at 16,548.90, touched a low of 16,203.25, and ended at 16,247.95, registering a decline of 4.78 percent.
After the initial fall, the Sensex rebounded for two consecutive trading sessions. However, as the conflict intensified, markets witnessed another sharp correction. From a high of 56,324.54 on February 28, 2022, the Sensex declined to a low of 52,260.82 on March 8, reflecting a fall of around 7 percent. Both the Sensex and the Nifty recovered to their pre-war levels by the end of March. Yet, volatility continued, and in early April the markets corrected by more than 16 percent before eventually recovering by late August 2022.
Israel-Gaza War (7 October 2023 – Present)
The Gaza war began on October 7, 2023, when the Palestinian militant group Hamas carried out a surprise attack on Israel. In this attack, 1,195 Israelis and foreign nationals were killed and 251 people were taken hostage. In response, Israel launched a large-scale bombing campaign and later entered Gaza on October 27 after clearing militants from its territory. Since the start of the Israeli offensive, over 72,000 Palestinians in Gaza have been killed. A study published in The Lancet stated that traumatic injury deaths may have been undercounted and suggested that the overall toll could be higher when indirect deaths are included. A wide body of academic opinion has concluded that Israel is committing genocide in Gaza, while Israel and several countries, including the United States, reject that characterization.
Israeli forces carried out multiple military campaigns, including the Rafah offensive, three battles around Khan Yunis, and the siege of North Gaza, which later led to a 2025 offensive in Gaza City. Hamas leaders were targeted and killed both inside and outside Gaza. A ceasefire in 2023 collapsed, and a second ceasefire in January 2025 ended after a surprise Israeli attack in March. A third ceasefire came into effect on October 10 after Israel and Hamas agreed to phase one of a United States-backed peace plan.
Indian markets reacted when they reopened after the outbreak of war. On October 9, 2023, the Sensex opened at 65,560.07, fell to a low of 65,434.61, and closed at 65,512.39, marking a decline of 0.73 percent. The Nifty opened at 19,539.45, touched a low of 19,480.50, and closed at 19,512.35, registering a decline of 0.72 percent.
In the two trading sessions that followed, both the Sensex and Nifty recovered. However, markets slipped again, with indices correcting by over 5 percent. By October 26, 2023, the Sensex had fallen to 63,148.15. Despite this volatility, both the Sensex and the Nifty recovered to their pre-war levels by the end of November 2023, indicating that the market impact was temporary.
Operation Sindoor (7 May 2025 – 10 May 2025)
A brief armed conflict between India and Pakistan began on May 7, 2025, after India launched missile strikes under a military campaign named Operation Sindoor. India stated that the strikes were carried out in response to the Pahalgam attack on April 22, 2025, in Indian-administered Jammu and Kashmir, where 26 civilians were killed. India accused Pakistan of supporting cross-border terrorism, an allegation Pakistan denied.
On May 7, India targeted what it described as terrorism-related infrastructure linked to Jaish-e-Mohammed and Lashkar-e-Taiba in Pakistan and Pakistan-administered Azad Kashmir. India stated that no Pakistani military or civilian facilities were targeted. Pakistan, however, claimed that the strikes hit civilian areas, including mosques, and caused civilian casualties. Following the missile strikes, both sides engaged in border skirmishes and drone activity. Pakistan retaliated the same day with mortar shelling in Jammu, particularly in Poonch, which resulted in civilian deaths and damage to homes and religious sites. The escalation marked the first drone battle between the two nuclear-armed countries.
In the early hours of May 10, India accused Pakistan of launching missile attacks on Indian air bases, including the Sirsa air base. Pakistan, in turn, accused India of striking several of its air bases, including Nur Khan, Rafiqi, and Murid. As tensions rose further on May 10, Pakistan announced Operation Bunyan-un-Marsoos, claiming it had targeted Indian military bases such as Udhampur, Pathankot, and Adampur. After four days of military exchanges, both countries confirmed a ceasefire on May 10, 2025, following a hotline conversation between their Directors General of Military Operations.
Markets initially reacted with caution. The Sensex fell nearly 700 points in pre-market trade, reflecting early nervousness. However, during the trading session on May 7, 2025, the indices stabilised. The Sensex opened at 79,948.80, touched a low of 79,937.48, and later rebounded to close at 80,746.78, marking an increase of 0.13 percent. The Nifty opened at 24,233.30, fell to a low of 24,220, and recovered to close at 24,414.40, registering a 0.14 percent gain.
In the two sessions that followed, as tensions intensified, markets slipped and witnessed a mild correction of around 2 percent. Despite this short-term volatility, both the Sensex and the Nifty recovered to their pre-war levels by May 14, indicating that the impact on the broader market remained limited and temporary.
US-Iran Tensions
Indian benchmark indices closed sharply lower on March 2, with the Nifty slipping below the 24,900 mark as rising geopolitical tensions and weak global cues weighed heavily on investor sentiment.
At the closing bell, the Sensex fell by 1,048.34 points, or 1.29 percent, to end at 80,238.85, while the Nifty declined by 312.95 points, or 1.24 percent, to settle at 24,865.70. Market breadth remained weak, with around 820 shares advancing, 3,386 shares declining, and 130 shares unchanged.
The weakness came amid escalating tensions between the United States and Iran, which rattled global markets. Indian equity markets reacted sharply to the developments in West Asia on Monday, March 2. The already cautious mood, driven by foreign capital outflows, geopolitical uncertainty and weak corporate earnings, turned more negative as the situation intensified.
The Sensex opened 2,743 points lower, down 3.34 percent, at 78,543.73. However, it trimmed a large part of its losses during the morning session. By around 10 am, the index was trading 830 points lower, down 1.02 percent, at 80,457. The Nifty 50 also saw a sharp drop at the open, falling more than 500 points, or over 2 percent, to touch an intraday low of 24,645. Like the Sensex, it recovered partially and was trading 262 points lower, down 1.04 percent, at 24,917 around 10 am.
The early selloff had an immediate impact on investor wealth. Within the first few minutes of trade, investors lost more than Rs. 8 lakh crore as the total market capitalisation of BSE-listed companies fell to Rs. 455 lakh crore from Rs. 463.50 lakh crore in the previous session.
Among the biggest losers on the Nifty were L&T, InterGlobe Aviation, Adani Ports, Tata Motors Passenger Vehicles and Adani Enterprises. On the gaining side, Bharat Electronics, Sun Pharma, ONGC, Dr Reddy’s Laboratories and Hindalco managed to end higher.
Except for metals, all other sectoral indices closed in the red. The Auto, Consumer Durables and Oil & Gas indices declined about 2 percent each. The Nifty Midcap and Smallcap indices also fell around 1.5 percent each, showing that the selling pressure was broad-based across the market.
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