Will India-Pakistan conflict lead to a major stock market decline?

Mumbai: The stock market ended weak on Tuesday as investors were on edge amid indications of a military conflict between India and Pakistan.

The BSE Sensex fell 0.2%, or 155.7 points, to close at 80,641, while the NSE Nifty-50 slipped 0.3%, or 81.55 points to end at 24,379. Adani Enterprises, Jio Financial, SBI Life, Trent, and Eternal were among the top Nifty losers.

The broader market took a sharper hit, with the Nifty Midcap 150 and Nifty Smallcap 250 indices dropping 2% and 2.2%, respectively. Out of the 4,072 shares traded on BSE, 3,209 declined, while 742 advanced.

“The geopolitical tensions between India and Pakistan have put a halt to the strong market rally seen in the past 15-16 days,” said Shrikant Chouhan, Head – Equity Research, Kotak Securities.

Chouhan said the uncertainty could result in the Nifty falling 200-400 points, but a sharper fall is unlikely unless something significantly adverse like a war erupts.

While India and Pakistan are yet to declare war on each other, the government said it will conduct mock drills across 244 cities on May 7, seen as a move to prepare civilians for emergencies like a war.Investors will also keep a close watch on the outcome of the US Federal Reserve’s rate-setting meeting on May 7. While the American central bank is expected to keep interest rates unchanged, Fed chairperson Jerome Powell’s assessment of inflation and growth in the wake of tariff-related uncertainties could drive the near-term market trends.At home, shares of state-run banks were among the top laggards on Tuesday, with the Nifty PSU Bank index plunging 4.8%. Bank of Baroda plunged 10.9% after its fourth quarter results fell below market expectations. Other PSU banks such as Bank of India, Union Bank, Indian Overseas Bank, Central Bank of India and Canara Bank dropped 5-7%.

Foreign portfolio investors (FPIs) were net buyers worth ₹3,795 crore on Tuesday, while DIIs sold equities worth ₹1,398 crore.