📰India Airstrikes Pakistan, China Tariffs India, Indian Asset Prices Holdy Steady

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

• India conducts targeted attacks on Pakistan two weeks after Kashmir terrorist attack,

• Indian asset prices hold steady during India-Pakistan escalation,

• and China raises anti-dumping import duties on Indian products.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Continued Escalation between India-Pakistan.

Two weeks after the terrorist attack in Pahalgam in Kashmir, India has now authorized and executed airstrikes in Pakistan. New Delhi authorized “Operation Sindoor,” a series of precise airstrikes against nine “terror camps” deep inside Pakistani territory, reaching well beyond the Line of Control into Bahawalpur, Muridke, Tehra Kalan, Sialkot, Bhimber, Kotli, and Muzaffarabad. India insists these strikes were non-escalatory, narrowly aimed at militant infrastructure, and that no civilian, economic or conventional military targets were hit. Islamabad vehemently disagrees: its military claims 26 civilians died, including three in cross-border shelling on the Indian side, and its Foreign Ministry denounced the hits as a war act. Pakistan’s prime minister, Shehbaz Sharif, warned that Islamabad can respond now in self-defense and also approved the armed forces to undertake corresponding actions.

This exchange is India’s first deep strike into Pakistan since 1971, but also includes Pakistan shooting down Rafale fighter jets. There is now an eerie feeling that the conflict is similar to the brinkmanship in 2019 when there was terrorism in Kashmir, yet the stakes are higher. Modi’s legacy rests partly on stamping out militancy in Kashmir and has resulted in political warfar,e including over water. Additionally, 2019 did not see Pakistan retaliate after India launched strikes at small military targets close to the border. 

Mindful of risks: India’s Foreign Secretary Vikram Misri justified the strikes as precise and restrained while sidestepping questions about civilian harm. Pakistan’s National Security Committee issued its defiant statement but has so far refrained from mounting full-scale retaliation, suggesting both sides still fear an uncontrolled spiral. That caution has long defined India-Pakistan clashes: even after the 2019 Balakot air raids, Pakistani forces downed an Indian MiG-21 and captured its pilot, only to release him as a gesture designed to cool tempers. Yet today’s broader context includes more confrontation, an abandonment of the IWT, and the lack of back-channel diplomacy, rendering miscalculation easier and de-escalation harder.

External powers are watching closely. Marco Rubio said Washington is monitoring events, while Trump expressed hope the conflict ends quickly, realizing that a prolonged war would undercut his trade discussions with New Delhi. China has leverage: it sits upstream on rivers and has expanded strategic cooperation with Islamabad in the China–Pakistan Economic Corridor. If India can flout an enduring water treaty, Beijing may be tempted to answer in kind.

Indian Asset Prices Hold Steady.

The recent escalation in hostilities between India and Pakistan has sent shockwaves through global markets, with India staying steady, Pakistan declining, and Chinese defense gaining. 

India: Despite the specter of full-scale war, India’s benchmark Nifty 50 index closed marginally higher on Wednesday, recovering quickly from intraday swings. The rupee briefly weakened but has outperformed most Asian peers since early April, buoyed by record domestic fund inflows and optimism over a looming US trade agreement. Indeed, past confrontations offer a blueprint for how India’s markets tend to behave: after an initial shock, equities often rebound within days as investors recalibrate focus toward fundamentals rather than geopolitics.

China: As Islamabad and New Delhi traded airstrikes and claims of downed aircraft, mainland Chinese defense stocks rallied 1.6 percent, driven by speculation that Beijing’s J-10C fighter jets may finally be battle-tested in Pakistan’s skies. For China, which has spent the past decade positioning itself as a supplier of choice to Pakistan’s armed forces, a combat record could unlock new export opportunities in other markets.

Pakistan’s growing reliance on Chinese weaponry is evident in the data: between 2019 and 2023, 82 percent of Islamabad’s arms imports originated from China, up from just 51 percent in the previous four-year span. The prospect of its jets engaging in live combat has bolstered investor confidence in companies like Avic Chengdu, whose shares logged their largest gain since October. 

Pakistan: Conversely, the sense of vulnerability sent Pakistani equities tumbling. The KSE-30 Index plunged approximately 3 percent while bond prices fell, reflecting not only immediate fears of further conflict but also broader economic fragility. Pakistan remains locked in an IMF program aimed at averting insolvency, and its markets have already endured a punishing sell-off in April as global funds shunned risk. If the IMF shuns conflict, Pakistani assets will continue falling since monetary disbursement could rely on a ceasefire.

The dynamic also underscores that short-term volatility spikes in this region are usually transient. Historical patterns in both India and Pakistan prove that geopolitical events are generally short-lived. Nevertheless, the current standoff serves as a stark reminder of how entwined regional security and capital flows have become. For Chinese arms exporters, the crisis offers an unexpected test; for Pakistani markets, it exacerbates existing macroeconomic woes; and for Indian investors, it reinforces the perennial balancing act between geopolitical risk and domestic growth potential.

China Institutes Anti-Dumping Import Duties on India.

China’s decision to slap anti-dumping duties on Indian exports of insecticides represents a pointed message to New Delhi and any other nation contemplating closer economic ties with Washington at Beijing’s expense.  As of Wednesday, Chinese authorities will levy punitive duties on cypermethrin shipments from India, declaring that the compound has been dumped into the Chinese market at below-cost prices, thereby harming domestic producers.  This action follows India’s recent imposition of a 12 percent tariff on certain steel imports and signals Beijing’s willingness to respond in kind when its economic interests are perceived to be undercut.

News sources: State broadcasters made the intent explicit by saying that retaliation against India was to stop wrongdoing, and any country using China’s interest to bargain would face similar countermeasures. In effect, Beijing is asserting that the calculus of global commerce cannot be skewed by bilateral deals that favor “America First,”  which conditions tariff relief on reduced dependence on China. 

This move is the first openly punitive measure by China since India signaled its ambition to conclude a provisional trade pact with the United States by autumn.  Early mutual wins in late April likely spurred China to leverage those ties against India even if it meant inflicting collateral damage on Chinese exporters.  By targeting a relatively narrow product category, China has chosen a calibrated response designed to register displeasure without derailing broader Sino-Indian relations.

The timing is no accident: Washington and Beijing are set to meet for trade talks in Switzerland later this week.  By enacting these duties now, China aims to remind both India and the United States that its economic heft remains a critical constraint on any multilateral bargain. For India, the episode illustrates the tightrope it must walk between deepening its strategic partnership with the United States and safeguarding its long-standing commercial relationship with China. 

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Gupshup.

Macro

• India's refiners are planning on buying more Russian oil on the spot market. Indian Oil Corp wants to source 25 percent of crude, and Bharat wants 33 percent of all crude to come from Russia due to lower prices. BPCL is also looking for destination-free clauses allowing for Russian oil to be traded globally after taking delivery. 

• Gold prices tumble as global FTAs sap safe haven demand. Spot gold fell 2.1 percent with the India-Britain FTA, plus China and the US meeting in Switzerland. Investors are also shrugging off rising tensions in India-Pakistan as being temporary volatility rather than drawn-out warfare. Risk-on environments cause gold to rally, but fading risk premia has led to prices dropping.  

• Indian LNG importers are buying up contracts linked to US pricing to hedge against volatility. About 11 million tons have been priced to the Henry Hub index versus crude oil indices as is traditional. US gas futures have exhibited lower volatility, which makes price spikes far less threatening.  

Equities

• Indian stocks rally $5 billion (₹421.5 billion) off of Pakistan airstrikes. 10 Indian defense companies have cumulatively gained 5 percent since the April 22 terrorist attack due to expectations of war. Since then, India has executed airstrikes at Pakistan, and Pakistan said it shot down 5 fighters.  

• Shares of fuel retailers will continue growing from improving refining margins. OPEC+ announced production increases, which will boost gross refining due to lower input, higher marketing profitability, and lower working capital needs. All of this stems from cheaper oil inventory. 

• The US push for internal drug manufacturing would hit Indian firms. Executive orders to prioritize US supply chains would hit the nearly 20 percent of generics in the country sourced from India.

• Large-cap shares have benefited much more than SMID caps. The Nifty has gained 10 percent in the past month, but volatility with trade and border tensions has made large caps carry the move. SMID caps have seen very little price appreciation as sophisticated investors have rotated capital more into blue-chip, resilient companies.  

Alts

• Cyclones have started to threaten Mumbai's banking and Bollywood sectors. Cyclones have been inching closer to the city over the past 2 damaging offshore oil rigs but missing the city. Currently, the city is unprepared for storms to ravage it. Mumbai accounts for 5 percent of India’s GDP, which is why it is in the midst of a $30 billion (₹2.5 trillion) infrastructure build-out, though climate protection is minimal.  

Policy

• More airlines are diverting to Pakistan and India has shut down 16 airports. All commercial jets have stopped flying over Pakistan after India’s airstrikes, as compared to yesterday, when only European ones had stopped. At least 16 airports near the border, most in Punjab, have stopped all flights for safety purposes. 

• The Labour Party is defending its Indian FTA against Tory dissenters. Opposition parties are saying that British workers will be undercut by the agreement to have some Indian nationals pay less tax. The Labour party defended it by saying that FTAs with 50 other countries include the same provision and that paying for both countries’ pensions was also nonsensical for British and Indian businesses.  

• Pakistan says that 5 Indian planes were shot down, conflicting reports on Indian prisoners. Reports show that at least 3 planes crashed in Kashmir. Pakistani Defense Minister Asif initially said that pilots were taken as prisoners, but has since changed his language to say no one was taken prisoner, adding to the confusion.  

See you Thursday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.