Markets face triple risk: India-Pakistan tension, FII outflows, and earnings storm brewing

After a strong weekly close, India’s stock markets face a turbulent road ahead as geopolitical tensions flare.

Benchmark indices ended the week with gains of 0.8%, driven by IT, pharma, and auto stocks. However, the mood turned cautious on Friday, with the Nifty slipping 0.86% to 24,039.35, snapping a two-day losing streak.

As trading resumes on Monday, markets will be on edge amid rising calls for military action against Pakistan following a militant attack in Kashmir. The chorus for a response similar to the 2019 strike has grown louder, rattling investors. With nuclear-armed neighbours exchanging measures, the political standoff threatens to escalate, keeping sentiment fragile.

At the same time, foreign institutional investors, who had returned aggressively over the past two weeks, will be crucial to sustaining momentum. After selling ₹1.22 lakh crore worth of equities this year, FIIs recently turned net buyers, picking up ₹32,466 crore over the last eight sessions. This reversal was helped by a softer US dollar, easing global tariffs, and a search for stability amid geopolitical uncertainty.

However, on Friday, FIIs turned sellers again, offloading ₹2,952 crore worth of shares, even as domestic institutional investors stepped in to buy ₹3,539 crore. With only a few trading sessions left in April, further FII moves could decide if India breaks its three-month selling streak.

Markets will also react to quarterly earnings from over 180 companies this week, including heavyweights across banking, energy, cement, and retail. Meanwhile, global cues from Wall Street gains and volatile crude oil and gold prices will add to the complexity.

Technical indicators point to heightened volatility. The Nifty has fallen below its 200-day moving average, and failure to clear resistance at 24,365 could see it consolidate between 23,500 and 24,350.

The rupee’s slide against the dollar, closing at 85.45 on Friday, further signals caution. Any escalation between India and Pakistan could trigger another leg of weakness, adding pressure on equities.

With foreign flows, geopolitical headlines, and key earnings colliding, markets are entering a critical week.