The Indian rupee, stocks, and bonds fell in late afternoon trading on Thursday after India announced it had "neutralized" attempts by Pakistan to attack several military targets in its northern and western regions on Wednesday night and Thursday morning, Reuters reported.

The government claimed that the Indian armed forces targeted radars and air defense systems at several sites in Pakistan on Thursday. The Pakistani military confirmed it had downed 25 Indian drones.

The rupee fell 1% to 85.71, the Nifty 50 benchmark share index (NSEI) fell 0.6%, and India's benchmark 10-year bond rate increased 6 basis points.

Volatility indices for the currency and Indian stocks have risen, indicating market players' concerns.

India's overnight index swap (OIS) rates also increased, with the most-liquid five-year rate climbing 12 basis points to 5.68% on the expected unwinding of speculative holdings.

In Pakistan, trading in the benchmark share index (KSE) was paused after the index fell 6.3% on reports of the drone attacks. The country's overseas bonds also widened recent losses.

Pakistan hails Chinese jets in repelling India strikes

Pakistan announced that it deployed Chinese-made J-10C fighter jets to shoot down five Indian aircraft in response to strikes carried out by India near the Line of Control, marking a sharp escalation in tensions over the disputed region of Kashmir, wrote Bloomberg on Wednesday. 

Foreign Minister Ishaq Dar told parliament that the Indian aircraft included French-made Rafale jets, according to the Associated Press, even though India has yet to confirm any losses publicly. In turn, Dar added that Pakistan kept Beijing fully informed of its actions, with China’s Ambassador Jiang Zaidong visiting Islamabad’s Foreign Office at 4 am on the day of the strikes.

The airstrikes come in the aftermath of a deadly April 22 Pahalgam attack that left 26 civilians dead in the Indian-controlled portion of Kashmir. India labeled the incident an act of terrorism and blamed Pakistan for facilitating it, a claim Islamabad has rejected.

India launched coordinated airstrikes early Wednesday against nine targets inside Pakistan, which it described as “precise and restrained” and “non-escalatory in nature.” However, the Pakistani army said that the strikes resulted in the deaths of 31 civilians and vowed a strong military response. Prime Minister Shehbaz Sharif also signaled the intent to retaliate, which was soon followed by reports of Indian jets being shot down.