Impact of rising India-Pakistan tensions on stock market: Samir Arora decodes

With India-Pakistan tensions on a rise, stock market participants are nervous. Market veteran Samir Arora said if the ongoing conflict worsens, nobody knows how far it would go. But, at the same breath, he noted that even long war periods look like mere dots on a 10-year index chart. 

"When you are in a middle of situation like that, it really does look scary," Arora told Business Today's Group Editor Siddharth Zarabi in an interview. 

Arora said India attracted $5 billion in equity inflows in the past 15 days. He insisted that such flows could see a pause if India-Pakistan tensions escalate. But this is not his base case assumption.

The market expert said India had to respond to Pahalgam terror attack, as it had done twice before, and the PM Narendra Modi was very clear this time as well. Pakistan responding to the same was also on the expected lines and the next round was supposed be the two countries calming down. 

"Here, there is a second round now. That is a new angle today. It may create some nervousness," he said adding that there are hopes that this round of escalation does not go open-ended. 
 
Reports indicate that Pakistan attempted to strike military installations in Jammu, Pathankot, and Udhampur using missiles and drones, though the attacks were reportedly unsuccessful. In retaliation, India is said to have launched missile strikes on major Pakistani cities, including Lahore, Islamabad, Sialkot, and Karachi. A complete communications blackout has reportedly been imposed across Pakistan-occupied Kashmir (PoK).

Further reports suggest that the Indian Navy conducted missile strikes on key Pakistani naval bases in Karachi, causing significant damage. This would represent India's first naval offensive against Pakistan since the 1971 war.

Arora said India recovered after 1-2 days in the previous such India-Pak tensions, as investors thought it is as bad as it gets. As a fund manager, Arora believes the market would soon discount this event as well, .

Arora of Helios Capital said India was and is in a sweet spot, given what is happening globally in terms of trade tensions and his view that the world is very much over-invested in the US equities and there is a clear recognition that such a trend is unsustainable. 

"The world has 70 per cent of its equity assets in the US, if we take it in line with MSCI World index. The historical average, on the other hand, is 50 per cent. This is a whopping $20 trillion dollars that foreign investors have extra investments in the US. Since the rest of the world is doing well now, some of that money will leave," Arora said adding that India could be a beneficiary of the same.