Indian Air Force (IAF) on Tuesday carried out pre-dawn air strikes on terror camps across the Line of Control (LoC) in the Pakistani side, 12 days after Pulwama terrorist attack in Kashmir. The attacks reflect India's firm determination to weed out terrorism. While the initial response of the financial market was negative, an SBI research believes such attacks are unlikely to have any material impact on the markets. Indian economy is currently on a sound footing with favourable macro numbers. To substantiate their argument, the report analysed two such past events and their financial impact.
For example, the Kargil war was fought between India and Pakistan in Kargil 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, respectively, in initial three days of trading, but recovered strongly thereafter and ended higher by 652 points and 191 points when the conflict ended. The overall impact of the Kargil war was in fact positive for the markets. The economy grew at the same pace in 1999-2000 as the year before - a healthy 6.5 per cent.
In the similar vein, post Uri surgical strikes, Indian financial markets gained with the Sensex climbing by more than 100 points and the rupee too appreciated. From a longer perspective, Indian financial markets, including the stock, currency, and even the bond market showed traction. For example, stock markets jumped by 3,456 points, while the rupee appreciated by 2.4 per cent.
The report expects that the impact of IAF air strikes will have no material impact on the markets the way markets remained unaffected post Kargil /Uri conflict as these conflicts are more localised in nature. Also, India has now clearly reaffirmed that its patience can't be taken for granted. This will in fact act as a positive for the markets for it shows India's decisiveness in its foreign policy.