Rattled stock market gains composure

Market volatility, however, is expected to rise in the coming days due to counter-attack threats issued by the Pakistan side.

Mumbai: Unsettled by the Indian Air Force’s air strikes on terror camps in Pakistan, India’s benchmark stock index Sensex fell 1.37 per cent, or 500 points, in early morning trade.

Analysts said it was just a knee-jerk reaction and in the long run such correction were bought into and in the long-run markets have gained after Kargil War and the Uri attack.

There was partial recovery as the day progressed, reducing the Sensex losses to 239.67 points, or 0.66 per cent, while the Nifty-50 index closed at 10,835.30, down 0.41 per cent.

Pakistan Stock Exchange's main indices, KSE 30 and KSE 100, fell 2.03 per cent and 1.98 per cent, respectively, in a panic reaction to the air strike by India.

Foreign investors were net buyers of Indian equities worth Rs 1,674.17 crore, indicating their confidence in the Indian market despite the prospect of heightened geopolitical tensions after Tuesday’s early morning air strike.

Vinay Khattar, Head–Edelweiss Investment Research, said, “Tuesday’s events could have a sentimental impact on the markets, especially because we are in a F&O (futures & options) expiry week. In economic terms, the real impact should be quite contained. The denial by the Pakistan establishment points to the fact that the military escalation may be limited. In any case, conflicts/wars are generally short-lived, specially given the fact that the other side has very little financial muscle to wage a war.”

Khattar added: “Generally the impact of any geopolitical event is felt over a number of days and looking at Tuesday’s trading session, it seems India’s financial markets have not seen any extraordinary move in equity, currency or bond markets,”.

Market volatility, however, is expected to rise in the coming days due to counter-attack threats issued by the Pakistan side.

NSE’s India VIX index, a measure of expected volatility in the stock market, on Tuesday shot up 11.44 per cent.

Mustafa Nadeem, CEO, Epic Research, said, “Volatility shot up as it inched up by more than 11 per cent amid rising concerns on the geopolitical front, which indicates the volatility is there and some kind of panic is inherent in the market, but the Nifty managed to recover quickly from lower levels.”

“The markets may not respond negatively since we do not have that kind of trades with Pakistan. We believe this will be a non-event for the market as when we look at history we see wars that have been extended to three months of time, but the Nifty managed to fetch a 35 per cent return,” Nadeem said.

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said, “The initial response of the financial market has been negative, we believe such attacks are unlikely to have any material impact on the markets. The Kargil war was fought during May to July 1999. During the aforesaid period, the leading indices of Indian stock markets showed an initial decline but strong recovery thereafter. The Sensex and Nifty declined by 286 points and 79 points in three trading initial days respectively, but recovered strongly thereafter and ended higher by 652 points and 191 points when the conflict ended.”

“The overall impact of the Kargil war thus was actually market positive. The economy grew at the same pace in 1999-2000 as the year before - a healthy 6.5 per cent. Post the Uri surgical strikes, Indian financial markets gained with the Sensex climbing by more than 100 points and the INR appreciating. From a longer perspective, Indian financial markets, including the stock, currency and even the bond market, showed traction. For example, Sensex gained 3,456 points, while the INR appreciated by 2.4 per cent,” Ghosh said.

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