The ongoing geopolitical tension between India and Pakistan has not only caused massive damage to the bilateral relations between the two neighbours but also triggered panic among investors on both sides of the border, with Pakistani stock markets suffering the most.
Following reports that Pakistani jets had violated the Indian air space, the BSE Sensex and the benchmark Karachi Stock Exchange -- KSE 100 index -- witnessed a steep fall. While the Sensex slipped up to 0.66 per cent, the KSE 100 index fell close to 4 per cent, its biggest fall since July 2017.
The air strikes on Wednesday was seen as a major escalation of tension which comes in the backdrop of February 14 Pulwama terror attack in which 40 CRPF troopers were killed.
The fall at KSE has been sharper considering that its indices had already plunged by over 700 points on Tuesday, the day Indian Air Force struck on terrorist hideouts on the Pakistani soul.
Wednesday's fall at KSE is also the biggest since July 11, 2017, when the index fell 4.65 per cent after a Joint Investigative Team (JIT) on money laundering reported that then Prime Minister Nawaz Sharif and his children had accumulated wealth beyond the known sources of income.
Though the fall at KSE is big, the market itself is incomparable to India. Deepak Jasani of HDFC Securities stated: "576 companies are listed on the Karachi exchange and its market cap is mere $87 billion ... 5,439 companies are listed on the BSE and the market cap of these companies is $2.1 trillion."
This means that the Indian stock market is over 24 times that of its Pakistani counterpart.
"Year-to-date (YTD) returns of the KSE 100 index is 4.4 per cent, while for the Sensex it is just 0.8 per cent," he added.
Similar was the impact on Tuesday when the IAF jets crossed the Line of Control (LoC) for the first time since 1971.
For the Indian markets, the developing security situation has so far been less painful. The BSE Sensex closed 68 points lower on Wednesday, though the Sensex witnessed intra-day volatility and fell over 600 points from its days highs, only to recover later.
On Tuesday, the KSE 100 index fell almost 2 per cent following the air strikes by the IAF in Balakot. In a knee-jerk reaction, fearing a continued escalation in hostilities, the index had nosedived at one point but later recovered 3.6 per cent from the lows as the situation seemed to be tense but not out of control.
Earlier on Wednesday, reports suggested that three Pakistan Air Force (PAF) F-16 fighter jets had violated Indian airspace in Nowshera sector of Jammu and Kashmir, but were pushed back by the IAF.
Following the development, all commercial operations in Leh, Pathankot, Jammu and Srinagar were put on hold, only to be resumed later in the day.
Analysts widely believe that markets will trade in a range until the tension eases, but taking note of the recovery seen on the bourses, they added the Indian market is mature and barring few knee-jerk reactions to reports suggesting escalation, it will avoid a serious decline until an actual war breaks out.
However, a prolonged period of tension and conflict could affect the markets adversely. Though chances of a conflict look remote at this juncture, the Ministry of External Affairs, in an official statement gave enough indications that things on the ground could change rapidly.
"It was clearly conveyed that India reserves the right to take firm and decisive action to protect its national security, sovereignty and territorial integrity against any act of aggression or cross-border terrorism," the MEA statement said.
(Ravi Dutta Mishra can be reached at ravidutta.m@ians.in)
--IANS
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