India-Pakistan tension: Market fall only a knee-jerk reaction, say analysts

Both the nations are sitting on a nuclear bomb and that will act as a war-deterrent, said G Chokkalingam, founder and managing director at Equinomics Research.

The steep fall witnessed in markets on Tuesday amid reports of fresh geopolitical tensions between India and Pakistan was a knee-jerk reaction and the negative sentiment will taper-off soon, say market experts. However, if the government officially confirms the development, the uncertainty in the market would last a little longer, they say. 

The benchmark index, S&P BSE Sensex, opened over 370 points lower on Tuesday after reports suggested Indian  fighter jets had destroyed a major terrorist camp in Balakot in Pakistan as tensions between the two nations rose following a suicide terror attack in Pulwama earlier this month.

However, both indices recovered as the day progressed. The S&P BSE Sensex ended at 35,974, down 240 points or 0.66 per cent, while the broader Nifty50 index settled at 10,835, down 45 points or 0.41 per cent.

Quoting unnamed sources in the the Indian Air Force, news agency ANI said a dozen Mirage 2000 Indian fighter jets dropped 1000 kilogram bombs on terror camps across the Line of Control (LoC).

"I think it's a completely knee-jerk reaction and one should not read too much into this, unless there's any major further escalation from both the sides. Things will be back to normal in a day or two," said Sudip Bandyopadhyay, group chairman, Inditrade Capital.

Echoing similar view, G Chokkalingam, founder and managing director at Equinomics Research, said: "Both the nations are sitting on a nuclear bomb and that will act as a war-deterrent. So, I feel both India and Pakistan will reach a compromise and the issue will be resolved soon."  

"In the last three-four decades, we have not witnessed any war from any country which have a nuclear bomb. So, it's not easy to go for a full-fledged war. Rupee, too, is expected to come back to normalcy and hover around 71 levels," Chokkalingam said.

On the other hand, Dr Ravi Singh, head of research, at Karvy Broking, believes the government has enough reserves to keep rupee in control. That said, if the war-like situation arises, the Indian unit may weaken to Rs 72 levels against the US dollar.

"Such developments not only create uncertainty in the minds of investors, but also impact the trade relations between the countries. Banks, infrastructure, metals and autos are likely to be among the worst performers in case of a negative sentiment," Singh adds.