A man looks up at an electronic ticker board showing stock information figures outside the Bombay Stock Exchange (BSE) in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Will Spike In India-Pakistan Tension Take A Toll On Markets?

Indian equities swung between gains and losses even as investors appear to be looking past the escalating tension between the country and arch-rival Pakistan.

Rising tension with Pakistan so far hasn't reversed foreign investors' optimism toward Indian stocks. Global funds bought net $487.5 million of shares so far this week, taking the month's purchase to $2.3 billion, the biggest inflow since November 2017, data compiled by Bloomberg show.

However, the skirmish couldn’t have come at a worse time for the world’s fastest-growing major economy battling headwinds from a rebound in oil prices to uncertainty surrounding the upcoming elections.

Here’s what analysts BloombergQuint spoke to are saying about the market:

‘Politics Will Play A Major Role’

Politics will be an important factor for foreign investors, says Prabhat Awasthi, Managing Director, Nomura India. “That cannot be wished away. It will keep investments into India on the sidelines.”

He said unless something goes really wrong—like sudden ratcheting up of crossborder tensions—the stock market will be “more or less fine”. He said the “risk money” will start to flow back eventually when either the perception of results (opinion polls) or the actual election results change.

Indian Markets Can Stay Resilient

Saurabh Mukerjea, founder, Marcellus Investment Managers said India has the ability to endure the effects of India-Pakistan tensions. As the situation defuses, financial companies and real estate developers will resume dealing with liquidity issues and crude oil prices will play a major role in the market environment, he said.

Even if it escalates to a Kargil-style three-month conflict, a $3 trillion economy like India can financially deal with the cost. That’s why markets are being relatively sanguine.
Saurabh Mukerhjea, Founder, Marcellus Investment Managers

‘Volatility Offers An Opportunity’

Andrew Holland said the volatile environment offered an “opportunity” to invest. But, he said, those opportunities lie in only select stocks.

It’s an opportunity for sure in certain stocks, which get tarred with the same brush. However, it’s not an opportunity to buy the whole market because keeping aside the geopolitical tensions, you have global headwinds as well.
Andrew Holland, Chief Executive Officer, Avendus Capital Alternate Strategies

Also read: Indian Assets' Break With Asia May Widen as Skirmishes Escalate