Geopolitical risk and the Indian stock market

Abstract This paper asks how global and country-specific geopolitical risk (GPR) shocks shape the dynamics of Indian equity markets. Using monthly data from July 1990 to February 2025, we estimate local-projection impulse responses for 28 broad and sectoral NSE indices, drawing on Caldara–Iacoviello’s global and disaggregated GPR measures. We find that global GPR shocks depress most broad-market and globally exposed sectoral indices, while selected segments, including Microcap 250, Manufacturing, Tourism, Media, IPO and Capital Markets, exhibit resilience, delayed recovery or positive responses. Auto records a mild long-run gain, while Defence shows only a short-run uplift. Threat-based shocks generate recoveries in several reallocation-sensitive indices, whereas act-based shocks produce broader contractions. Country-level shocks from major economies largely mirror global patterns, China and Saudi shocks weigh on resource sectors, and France- and Ukraine-related shocks support recovery in selected segments. India-specific shocks appear mixed and partly anticipated.