Escalating tension between India and Pakistan keeps markets on tenterhooks

Sensex ends flat after swinging 636 points, or 1.75%

The escalating tensions between India and Pakistan kept markets on tenterhooks. The benchmark Sensex on Wednesday swung 636 points, or 1.75 per cent, before ending marginally lower over its previous day’s close.

In early trade, the 30-share blue-chip index had gained nearly 400 points — over a per cent. However, it gave up all the gains after Pakistan responded to India’s air strikes, stoking fears of war between the two nuclear-powered neighbours.

The index finally ended 68 points, or 0.2 per cent, lower at 35,905.  The 50-share Nifty also fell 28.65 points, or 0.3 per cent, to 10,806.65. The rupee also weakened as much as 17 paise against the US dollar to end at 71.24 over previous day’s close of 71.07.

The BSE Mid-cap and Small-cap indices managed to outperform with gains of 0.4 per cent and 0.2 per cent, respectively.

Analysts said the early gains were on optimism that the Indian Air Force’s incursions on Tuesday might have improved the poll prospects of Prime Minister Narendra Modi in the forthcoming Lok Sabha elections due in May. However, things changed after reports of Pakistan’s retaliation on Wednesday emerged.

“Everyone is cautious as the tensions have escalated.  Investors are gauging whether issues will be resolved or things could turn worse before it gets better. The markets rallied hoping that the worse is over. But today’s developments were the exact opposite of what the markets were thinking. We cannot be certain anymore, so some people might sit on the sidelines and see how the situation evolves,” said Andrew Holland chief executive officer, Avendus Capital Public Markets Alternate Strategies.

The India Vix, a measure for market volatility, spiked 10.4 per cent, extending its two-day surge to 23 per cent — suggesting that traders were expecting more wild swings in the coming days.

“Volatility is at an extreme on account of geopolitical concerns. We are not predicting any war-like situation. Historically, technology, consumer staples, pharmaceuticals, and telecom may have tailwind in such a scenario while the rest of the sectors may face headwind,” said Yogesh Mehta, vice-president, retail research, Motilal Oswal Financial Services.

Fourteen out of the 30 Sensex components declined. The top losers were Tata Motors, Vedanta, and Hindustan Unilever — falling 3 per cent, 2.9 per cent, and 1.8 per cent, respectively.

Bharti Airtel rose 2.43 per cent, most among Sensex components, followed by Larsen & Toubro and TCS, which gained more than a per cent each, helping the markets contain losses.

Both foreign institutional investors (FIIs) remained net buyers, but, their buying was moderate compared to previous few sessions. On Wednesday, FIIs bought shares worth Rs 423 crore and domestic institutional investors were marginal buyers to the tune of Rs 67 crore.

Experts said markets will be volatile on Thursday, the day of expiry for February-series derivatives contracts.

Pakistan stock investors were also at the receiving end due to the rise in the geopolitical tensions with India. The Karachi Stock Exchange’s benchmark index KSE 100 had lost up to 1,491 points in the first half of the trading day. However, the index later saw a sharp bounce-back. It ended 129 points or 0.33 per cent lower at the end of Wednesday’s trading session.