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Domestic equity markets came under sudden pressure on Thursday, May 8, after the Indian defence ministry confirmed retaliatory strikes against multiple Pakistani air defence targets. The announcement triggered a wave of volatility in the final trading hours, with benchmark indices reversing early gains and ending lower for the day.

The BSE Sensex fell as much as 454 points to hit an intraday low of 80,292, before closing down 383 points or 0.47 per cent at 80,363.65. The NSE Nifty50 declined 168 points or 0.69 per cent to close at 24,249.35.

The biggest market mover was the India VIX, which surged 12.6 per cent to 21.4, marking its steepest intraday rise since April 7, according to Bloomberg data. The spike reflects heightened investor nervousness amid geopolitical uncertainties, especially given the sensitive timing—just weeks ahead of the Lok Sabha election results.

The VIX gauges short-term volatility expectations based on Nifty50 index options. A sharp rise typically indicates a rush for downside protection and greater market caution.

The volatility intensified after India confirmed that its armed forces had neutralised several air defence positions inside Pakistan and Pakistan-occupied Kashmir (PoK) in a calibrated response to a failed attempt by Pakistan to target Indian military assets in the North and West.

While India reiterated it seeks no escalation, the statement underscored a significant escalation in military posturing. Following India's ‘Operation Sindoor’, Pakistan responded with artillery shelling across Kupwara, Baramulla, and Rajouri sectors.

Meanwhile, Pakistan’s stock market trading was suspended, with the KSE-30 index plunging 7.2 per cent. Since the Pahalgam terror attack, the KSE-30 has lost 14.2 per cent, whereas India’s Sensex is still up 1 per cent during the same period.

While the selloff wasn’t panic-driven, market participants are now pricing in geopolitical risk premiums, especially in defence and oil-sensitive stocks. Any further escalation could see the VIX rise beyond 22, and Nifty test near-term supports at 24,100 and 23,950, said analysts.

Investors are advised to tread cautiously with hedges in place, especially with election results looming. Traders are also keeping an eye on crude oil prices, the rupee, and global equity cues.

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