India-Pakistan Military Escalations: Will It Impact Stock Market & Trading?

Experts say that the tensions will have minimal impact on D-Street

Economic affect of India-Pakistan tensions
Economic affect of India-Pakistan tensions

Pulwama attack on February 14th conducted by terrorists against Indian soldiers has triggered military escalations between India and Pakistan.

Indian Airforce conducted airstrikes against terrorist camps located inside Pakistan, and Pakistani Airforce has attempted to retaliate but failed.

Meanwhile, an Indian pilot is right now with Pakistan’s custody, and tension is clearly in the air as both IAF and PAF are flying dangerously close to the volatile LOC area.

Amidst this military escalations and tensions between India and Pakistan, should D-street be worried? How will the stock market react?

Experts’ View: Stock Market Will Not Be Impacted

If we go back to history and analyze the impact of Pokhran nuclear bomb tests in 1998 and the Kargil war in 1999, then we will find that yes, there can be short term, immediate effect.

But there won’t be any long term implications, and the market will rebound.

Both Pokhran Nuclear Tests and Kargil War had shot up the tension barometer between India and Pakistan, and the later was actually a war.

Pokhran Nuclear Tests Impact on Market

On 11th and 13th May, 2008, India conducted Pokhran Nuclear tests and stunned the world. If we leave aside the sanctions which were imposed on India by India and EU and only observe the Sensex, then we will find that there was no negative effect whatsoever.

The Sensex lost 7% in three days, but then, recovered 5% in next 2 days.

Kargil War Impact on Market

Kargil War triggered on May 3rd, 1999 and July 26th, 1999 was the official end date.

During this period, Sensex gained 38%.

India’s GDP was maintained at 6.5% annual growth, and there was no negative effect of the war.

During the Uri surgical strike, the Sensex lost just 1.2%, but the market recovered the loss in the next 3 sessions.

Can Pakistan Afford This War?

As per experts, Pakistan’s economic condition doesn’t allow them to wage a war against India right now. Their foreign reserves have shrunk to $8 billion, which is barely enough to cover their imports for 2 months,

Their current account deficit or (CAD)  is 5%, and this is worrisome.

Besides, India has increased import duty for all goods imported from Pakistan to 200%, which has further deteriorated their economic position. They are in urgent need of money from IMF, and if any war actually happens, they won’t get it.

On the other hand, India’s India VIX or in layman terms the fear gauge indicator for Indian equities, increased by 11% to 17.12 after the air strike against terrorists, deep inside Pakistani territory.

After the airstrikes on Tuesday, Sensex lost just 1.4% points.

This clearly proves that the economic impact of the current military tensions will be marginal for India, but can be catastrophic for Pakistan.

We will keep you updated, as we receive more updates.

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