Bernstein flags global risk as India responds to Pakistan attack

Published 07/05/2025, 13:10
© Reuters.

Investing.com -- India’s cross-border airstrikes on Pakistani territory have raised the stakes in South Asia’s most volatile flashpoint, with Bernstein warning of potential global repercussions should the situation escalate further.

Fifteen days after a terrorist attack in Pahalgam, Indian forces conducted airstrikes on nine sites within Pakistan and the disputed region of Jammu and Kashmir under Operation Sindoor.

While Indian authorities emphasized the strikes demonstrated “restraint” and avoided military facilities, Bernstein analyst Venugopal Garre believe this development is “not a minor event” that could carry “significant global ramifications if both nations decide to escalate things further”.

The nature of the current action stands apart from past incidents. Compared with the 2019 Balakot strikes, Garre notes that “these strikes appear to be far more escalatory in nature,” citing the targeting of sites deep inside Pakistani territory, including Muridke and Bahawalpur.

The analyst believes Pakistan’s response would be critical in shaping what happens next. Based on historical precedent, an immediate retaliation could occur, but the broker does not expect a full-scale war. “We still believe chances of the latter are low,” Garre wrote in a note.

Geopolitical conditions complicate India’s strategic position. With ongoing conflicts involving allies Russia and Israel, a newly unfriendly government in Bangladesh, and China’s support for Pakistan, the timing of the conflict with Pakistan is far from ideal.

“With U.S. likely to remain neutral, we do not see it as the best of times for engaging in a full scale war,” the note said.

From a markets perspective, Bernstein acknowledged that Indian equities have historically shown resilience following such escalations. During the Kargil conflict, the Nifty dropped nearly 7% immediately after India’s retaliation but rebounded 5.6% within two weeks. Similar recoveries followed the Uri and Pulwama incidents.

The current situation, however, may trigger a stronger initial reaction due to the scale of the strikes and more inflammatory rhetoric from Pakistan. Still, Garre believes “buy the dip is the best strategy in an event the equity markets decline today”.

The report reiterated its overweight stance on Financials, Utilities and Telecom (BCBA:TECO2m), and noted that Defense stocks could benefit if military spending rises. However, the broader risk remains the geopolitical uncertainty and potential pressure from trade partners, including the U.S., which is currently negotiating a treaty with India.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.