Dutch Journal of Finance and Management

Dutch Journal of Finance and Management, 2025 - Volume 8 Issue 2, Article No: 38895
https://doi.org/10.55267/djfm/17339

Published Online: 26 Oct 2025

Views: 126 | Downloads: 36

In recent decades, India’s financial markets have undergone remarkable change, marked by growing foreign participation, rapid technological advancement, and increasing integration with the global economy. At the same time, shifting power equations, regional conflicts, and trade disputes have made the geopolitical environment more uncertain, creating new challenges for India’s financial sector. This study explores how such geopolitical developments influence key segments of the Indian financial system—equity, bond, foreign exchange, and banking markets—over the period January 2012 to April 2024, a timeframe that includes major events such as the Russia–Ukraine war and U.S.–China trade tensions. Adopting a quantitative approach, the analysis uses the Quantile Vector Autoregression (QVAR) framework to trace how shocks from global geopolitical risk spread across financial markets under low, medium, and high-risk conditions. The Geopolitical Risk Index (GPRI) proposed by Caldara and Iacoviello (2024) serves as the primary measure of geopolitical uncertainty, while relevant financial data are drawn from sources such as NSE, RBI, and Bloomberg. The findings indicate that the effect of geopolitical risk is uneven across markets and more pronounced during periods of heightened tension. The study also points to the underlying resilience of Indian markets, supported by sound regulation, economic diversification, and institutional strength, while stressing the importance of continued policy vigilance to manage risk and sustain financial stability.

Indian financial markets geopolitical risk investor sentiment capital flows regulatory resilience market volatility India economy

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