In short
•Geopolitical tensions between India and Pakistan have led to volatility in financial markets
•Focusing on defensive sectors such as defense, financials, FMCG, telecommunications, and infrastructure amid uncertainty.
•Despite the tensions, foreign investors continue to buy into Indian markets, suggesting cautious optimism for recovery based on strong macroeconomic fundamentals.

Geopolitical tensions between India and Pakistan have brought new volatility to financial markets, with Pakistan's benchmark index falling sharply and Indian equities displaying marked resilience. Experts are urging investors to keep cool and concentrate on certain sectors long proven to resist such crises.

The Karachi Stock Exchange's KSE-100 index dropped by over 7% on Thursday in response to fears of escalation after recent military activities, including India's Operation Sindoor. Conversely, India's Nifty 50 index stayed above its important support level of 24,050, indicating the confidence of the market despite intensifying tensions.

With tensions running high after incidents like the Pahalgam terror attack and Pakistan's missile attacks pre-empted by Indian air defences investors are monitoring defence and aerospace stocks closely. Hindustan Aeronautics Ltd. (HAL), Bharat Electronics Ltd. (BEL), and Bharat Dynamics Ltd. (BDL) are poised to gain from increased domestic defence outlays anticipated by analysts, says Seema Srivastava, Senior Research Analyst at SMC Global Securities.

"These companies are at the centre of India's drive for indigenous military strength and have robust institutional backing," she added, saying that Mazagon Dock Shipbuilders Ltd., a key naval contractor, is also likely to benefit from increased defence spending and export demands.

Equities in the financial sector, especially large private banks, are also being suggested as safe bets amid the ongoing geopolitical uncertainty. HDFC Bank Ltd., ICICI Bank Ltd., and Axis Bank have been quoted for their strong fundamentals and minimal exposure to global shocks.

"These banks are underpinned by healthy domestic growth and consistent foreign institutional investor (FII) inflows," added Srivastava. "Despite the recent decline of almost 5% in the Nifty PSU Bank index, private sector lenders are likely to recoup more quickly because of their capital and diversified book."
Fast-moving consumer goods (FMCG) continue to be a defensive sector of choice during market stress. ITC Ltd. and Hindustan Unilever Ltd. (HUL), with their consistent cash flows and market leadership, are seen as safe bets for risk-averse investors.

In telecommunication, Bharti Airtel Ltd. and Reliance Industries Ltd., in its digital subsidiary Jio, are viewed as strategic entities because of their central positions in national infrastructure and communication security. Srivastava pointed out that continuous investment in networking expansion and their in-built position in the Indian economy make such companies highly resilient in the case of geopolitical uncertainty.

Agrochemical shares like UPL Ltd., PI Industries Ltd., and Bayer CropScience Ltd. have also been in the limelight because of their vital contribution to India's agriculture industry, which is relatively insulated from global shocks.
Infrastructure and manufacturing-linked stocks such as Larsen & Toubro Ltd. (L&T), KEC International, and Siemens Ltd. are also being watched by analysts. These stocks are protected from global market fluctuations by strong order books backed by Indian government spending.

"Capital goods companies are comparatively less exposed to geopolitical turbulence on account of long-term domestic projects and well-defined execution pipelines," Srivastava said.

Although Indian markets opened lower on Friday, sentiment fell approximately 0.7% on both the Nifty and Sensex indices, analysts commented that the correction was limited versus what would otherwise be expected in such crises. The stability has been brought about due to strong GDP growth expectations, declining interest rates, and sustained FII participation.

India's air defence forces are said to have intercepted more than 50 Pakistani missiles on Thursday evening and shot down four enemy planes, indicating the gravity of the situation. However, the Indian market's response was termed as contained, with foreign investors continuing to be net buyers injecting more than Rs 2,000 crore on the day of the missile strikes.

Ganesh Dongre, Senior Manager of Technical Research at Anand Rathi, said technical indicators remain strong for several stocks, including HAL, BEL, Mazagon Dock, ICICI Bank, ITC, Bharti Airtel, and Reliance.

Historically, Indian equity markets have displayed the ability to recover swiftly following brief periods of geopolitical tension. Previous India-Pakistan stand-offs, such as those in 1999 and 2019, saw limited and short-lived market corrections.

Experts think that this trend may reoccur, especially if the present conflict is contained and macroeconomic fundamentals continue to be strong. "Avoid panic selling," HDFC Securities' Head of Prime Research Devarsh Vakil said. "Stay invested, hedge sensitively, and wait for clarity.

For the time being, investors are best counseled to focus on quality rather than speculation and have a diversified portfolio across stable sectors. The Indian equity universe remains one that offers room for cautious optimism despite the tensions.