Escalating tensions between India and Pakistan could shake investor confidence and lead to major market movements. While the looming threat of conflict could lead to a decline in many sectors, others such as defense, energy, and infrastructure could see an unexpected surge. In this article, we will analyze which Indian stocks could fall and which could rise if a war breaks out.
Key Takeaway
If India–Pakistan tensions escalate into a larger conflict, investors may want to look toward:
- Defense stocks like BDL, BEL, HAL, and Mazagon Dock for direct exposure to military spending.
- FMCG and consumer staples like HUL, ITC, and Dabur for stability.
- Private sector banks like HDFC Bank and ICICI Bank for potential recovery plays.
- Energy and utility giants like ONGC, NTPC, and Power Grid for inflation hedges.
- Gold and government bonds for safety and capital protection.
Geopolitical Tensions Mount
- Pahalgam terror attack. On April 22, a terrorist strike in Pahalgam, Jammu & Kashmir killed about 25 people (mostly tourists), triggering a sharp escalation with Pakistan. India immediately blamed Pakistan-backed militants and the ISI.
- Retaliatory measures. New Delhi suspended the Indus Waters Treaty, closed borders, and imposed an import ban on Pakistan. Islamabad in turn suspended the Simla Accord, halted trade, and closed its airspace to Indian airlines.
- War-readiness drills. In response, the Home Ministry ordered nationwide civil defense mock drills on May 7 to prepare for “potential hostile attacks”. India’s cabinet and military chiefs have held high-level meetings on strategy. In short, the India–Pakistan standoff is entering its highest alert phase in years.
These developments have investors bracing for volatility. A Reuters report noted that Indian markets fell sharply on April 25, “significantly underperforming other Asian indexes” amid fears of escalation. The rupee weakened toward ₹85.50/USD as nervous traders fled to the dollar.
Sectors Likely to Suffer If India–Pakistan Conflict Escalates
Some stocks tend to benefit during times of military tension, but not all sectors are equally resilient. A full-scale conflict between India and Pakistan could cause major problems for sectors tied to discretionary spending, global trade, and consumer sentiment. Here is a breakdown of the industries and companies most at risk in the event of war.
1. Airlines & Aviation – First to Crash in a War Scenario
A conflict would almost certainly lead to the closure of Pakistani airspace — a move that has previously caused massive disruption for Indian airlines. Airlines like IndiGo and SpiceJet could face increased flight durations, higher fuel costs, and reduced passenger volumes.
Risk Factors:
- Rising jet fuel prices due to oil spikes.
- Travel bans or advisories.
- Cancellations and weak bookings.
Analyst Insight: After the 2019 Pulwama attack, aviation stocks fell sharply. The same trend is expected if war breaks out again.
2. Hospitality & Tourism – A Major Casualty
Hotel chains and tourism-dependent businesses could take a significant hit. Fears over safety, potential curfews, and border closures would dampen both domestic and international tourism.
Vulnerable Companies:
- Indian Hotels Company Ltd (Taj Hotels)
- EIH Ltd (Oberoi Hotels)
- Thomas Cook India and other tour operators.
Market Commentary: Siddhartha Khemka of Motilal Oswal has already pointed out selling pressure in hotel and aviation stocks due to negative sentiment around travel.
3. Mid- and Small-Cap Stocks – Hit Hardest by Panic Selling
During heightened geopolitical risk, retail investors often dump mid-and small-cap stocks in favor of safer blue-chip names. These smaller companies are seen as riskier, less liquid, and more volatile in uncertain times.
Why They Fall:
- Lack of institutional support during sell-offs.
- Retail panic selling.
- Exposure to discretionary and cyclical sectors.
Expert View: G. Chokkalingam of Economics Research expects underperformance in these segments due to fragile investor sentiment.
4. Export-Dependent Companies – Double-Whammy of Rupee and Demand
At first glance, a weaker rupee (hovering near ₹85.45/USD) may seem good for exporters. But in a global slowdown triggered by war, demand can also shrink. Plus, many Indian exporters import raw materials, meaning their margins can be squeezed.
At-Risk Sectors:
- IT firms (Infosys, TCS) reliant on U.S./European clients.
- Auto exporters (Bajaj Auto, Tata Motors).
- Pharma giants (Sun Pharma, Dr. Reddy’s) with global operations.
Analyst Observation: Reuters has flagged rupee weakness linked directly to war fears. However, benefits to exporters are likely limited due to higher input costs and demand destruction.
5. Discretionary Consumer Stocks – Spending Takes a Backseat
In wartime or even amid war fears, households typically reduce spending on non-essential goods — hurting sectors like apparel, electronics, retail, and luxury products.
Stocks at Risk:
- Titan Company Ltd – Known for jewellery and watches.
- Avenue Supermarts (DMart) – Retail giant with exposure to urban consumer demand.
- Trent Ltd, V-Mart Retail – Focused on fashion and lifestyle.
Historical Trend: Discretionary names tend to sell off faster than staples during macro shocks.
Where to Invest if India–Pakistan Tensions Escalate: Sector-wise Breakdown
Investors are naturally concerned as tensions between India and Pakistan rise and the risk of conflict looms. At such times, markets often react sharply. But history shows that some sectors and stocks not only survive geopolitical uncertainty – they thrive. Here’s which stocks could perform well and which stocks are best advised to be cautious if a large-scale conflict erupts.
1. Defense & Aerospace – The Go-To Sector in Times of War
When war clouds gather, defense stocks typically rally on expectations of higher government spending. The government prioritizes national security, and defense contractors often receive massive orders for arms, ammunition, and equipment.
Top Stocks to Watch:
- Bharat Dynamics Ltd (BDL) – Specializes in missile manufacturing. Year-to-date, it’s up around 26%.
- Mazagon Dock Shipbuilders Ltd (MAZDOCK) – Builds warships and submarines. Stock is up 18% YTD.
- Hindustan Aeronautics Ltd (HAL) – Key producer of fighter aircraft for the Indian Air Force.
- Bharat Electronics Ltd (BEL) – Focuses on radar, communication, and surveillance systems.
2. FMCG & Consumer Staples – A Shield in Uncertain Times
Even in war or economic downturns, people still need soap, food, and essentials. That’s why consumer staples and FMCG stocks tend to stay resilient, making them a solid defensive play.
Top Picks:
- Hindustan Unilever Ltd (HUL) – Market leader in daily essentials like soaps, shampoos, and food.
- ITC Ltd – A diversified giant with strong FMCG, cigarette, and hotel business.
- Dabur India Ltd – A leader in Ayurvedic personal care and home products.
Market Insight: Karan Aggarwal from Elever PMS and Amit Jain from Ashika Advisors both recommend sectors like FMCG that have stable domestic demand and less exposure to global volatility.
3. Private Banks – Risky but Potential for Rebound
In any crisis, banking stocks take a hit first. But quality private sector banks often rebound faster than public sector ones due to their stronger fundamentals and better risk management.
Strong Contenders:
- HDFC Bank Ltd – Known for clean books, large retail base, and steady performance.
- ICICI Bank Ltd – One of the most tech-savvy and profitable banks in the country.
Analyst View: While PSU banks are still struggling, some experts believe the drop in private banks is a buying opportunity for long-term investors.
4. Energy & Utilities – Could See a Boost from Oil Price Spikes
A geopolitical crisis almost always sends oil prices soaring. Indian oil companies and power utilities can benefit from this rise, especially if global supply is disrupted.
Stocks to Watch:
- ONGC Ltd – India’s biggest oil and gas exploration firm.
- Reliance Industries Ltd (RIL) – Dominant player in petrochemicals and refining.
- BPCL Ltd – Public sector oil refiner and distributor.
- NTPC Ltd – India’s top electricity producer.
- Power Grid Corporation of India Ltd – Operates the country’s main transmission network.
Investor Note: These stocks may gain in the short term, but rising oil prices could hurt industries like auto, aviation, and chemicals due to higher input costs.
5. Gold and Government Bonds – Time-Tested Safe Havens
While not equities, gold, and sovereign bonds deserve a mention. Indian gold prices have recently hit record highs (over ₹1,00,000 per 10 grams) as investors turn to safety.
Expert View: Economist Pradeep Gupta calls gold “a well-placed hedging mechanism” during times of inflation, policy uncertainty, and military risk. Bonds, especially government ones, also offer capital preservation when equity markets turn volatile.
In short, defensive Indian stocks – defense, domestic staples, utilities, quality banks – are likely to outperform in the turmoil. These are the “war-proof” segments many strategists are flagging.
Historical Precedents
Past India–Pakistan crises show markets typically shrug off short-term shocks:
- Pulwama 2019: After the February 2019 Pulwama attack, the market fell about 1.8% over the next two trading weeks.
- Uri Strike 2016: During the September 2016 Uri attack and subsequent strikes, the market slid roughly 2%.
- Parliament Attack 2001: When terrorists hit Parliament in Dec 2001, the Sensex and Nifty briefly dipped under 1%, then recovered by close of day.
- Kargil War 1999: In the 2½-month Kargil conflict, India’s indices were essentially flat (down only ~0.8%).
- Mumbai 2008 Attacks: Even during the 26/11 Mumbai terror siege, Sensex rose (gaining ~400 points) as panic was short-lived.
An Anand Rathi study summarised that market corrections during past Indo-Pak flare-ups averaged only ~7% (median ~3%). In other words, sharp wars have led to surprisingly modest sell-offs, and rebounds can be quick once immediate fears fade. As SBI AMC’s Ashwani Bhatia observes, “Conflicts… have seen mixed market reactions… The markets become volatile in the short-term, and it is part of the cycle”.
These cases suggest that unless a full-scale ground war breaks out, any declines could be limited. As one strategist puts it, current market resilience implies investors have mostly “not discounted a scenario of the tensions culminating in a war”.
Expert Views and Strategy
Market experts emphasize caution but also perspective. Swaminathan Aiyar (ET Markets) notes that if both sides exercise restraint “apart from tantrums up and down, at the end of it all we will see it through, we will ride out that storm”. In other words, contained skirmishes may only cause a short-lived dent in stocks. He warns only a sustained, larger war would drive real economic impact.
Others urge investors to stay defensive and focused on quality:
- G. Chokkalingam (Equinomics): Small/mid-caps should be avoided for now, as border tensions “will weigh on investor sentiment”. He recommends tilting toward large caps and industry leaders. Crucially, he cautions that “if there is any… major conflict or war, then the whole market… may see a substantial fall”.
- Amit Jain (Ashika): Focus on companies with robust balance sheets and domestic businesses. “It’s a time to avoid excessive risk,” he says, favoring sectors like domestic banks, FMCG, and capital goods that have minimal global trade exposure.
- Nilesh Shetty (Quantum Advisors): Argues that many defense stocks have already rallied heavily: “Defense stocks are overvalued compared to consumer staples”. In his view, it’s better to stay patient or allocate to cheaper staples (FMCG) rather than chase the overheated defense names.
- Pradeep Gupta (GFG AMC): Gold fund manager Gupta highlights that gold’s current rally reflects investors seeking a safer asset. He says gold is now a legitimate “alpha generation” asset, not just a haven, underscoring its role in portfolios amid the crisis.
Collectively, these voices suggest a strategy of “buy on dips” with a defensive tilt. As Religare’s Ajit Mishra notes, there may be selective buying opportunities if the market corrects, but it should be done with hedges and caution.
Summary & What Should Investors Do?
If a full war breaks out between India and Pakistan, the stock market will likely take a hit—at least in the short term. But if we look at past events, any major crash may not last very long. The key for investors is to stay calm and avoid panic decisions.
Here’s what experts suggest:
Stocks to Avoid or Reduce
- Airlines, Hotels, and Travel Companies: These businesses are directly affected by war, especially if flights get canceled or tourism drops.
- Small and Mid-Cap Stocks: These tend to fall more during uncertain times because people pull money out of risky investments first.
- Export-Heavy Companies: IT services, pharma, and auto exporters could get hit if the rupee weakens or global trade slows down.
- Avoid chasing “war hype” stocks just because everyone is talking about them—they can crash just as fast as they rise.
Stocks to Consider Buying or Holding
- Defense Stocks: Companies like HAL, BEL, and Bharat Dynamics may benefit from more government orders.
- FMCG (Fast-Moving Consumer Goods): Brands like HUL, ITC, and Dabur sell daily-use items, so their sales are usually stable even during a crisis.
- Power & Utility Companies: Firms like NTPC and Power Grid offer steady returns because people always need electricity.
- Oil & Gas Companies: If oil prices rise due to war, ONGC and Reliance could benefit.
- Gold: If you haven’t already invested in gold, this might be a good time. It usually does well when markets are nervous.
What to Keep Holding
- Large Cap and Index Funds: These include big names in the Sensex and Nifty. They’re more stable and bounce back faster aftershocks.
- Don’t make sudden changes. Review your portfolio and make sure it’s well-diversified.
Final Advice
In times like this, it’s better to focus on quality—companies with strong financials, good management, and steady demand. Don’t try to time the market. Long-term investors who stay patient often come out ahead.
As one expert said:
“Buy strong companies, hold what’s working, and don’t get swept up by panic or hype.”
Sources: Market data and analysis from the Economic Times, Reuters, Mint, and other financial news outlets.