‘Surgical strikes’ sear markets
Highest slump in Sensex, rupee since Brexit; G-sec yields spike most in a year
The Indian Army’s “surgical strike” on launch pads of terrorists across the Line of Control in the early hours of Thursday weighed on the domestic stock markets, eroding ~2.5 lakh crore of investors’ wealth.
Stocks and the rupee posted their biggest declines since the Brexit vote in June and yields on the 10-year government security (G -sec) jumped the most in over a year on concerns that the flare up could hurt investor sentiment and increase risk premium.
The benchmark BSE Sensex ended the day 1.64 per cent or 465.28 points lower at 27,827.5, after dropping as much as two per cent intraday. The Nifty 50 index slumped 1.76 per cent to 8,591, with only three of its components ending with gains. The rupee weakened 0.6 per cent to 66.85 per dollar, prompting the Reserve Bank of India (RBI) to sell the greenback to stem losses. Both the rupee and equity indices had the worst day since June 24, when Britons voted to move out of the European Union. The yields on the 10-year G -sec hardened eight basis points, the most since August 2015, to 6.86 per cent.
Domestic markets dropped despite overall buoyancy in the European and other Asian markets as oil producing nations announced a deal to cut output, sending oil prices higher.
Experts said market performance going ahead would depend on how the situation on the border pans out.
"Further impact on the market will depend on the extent of escalation. Foreign investors won't sell in a hurry and would observe the situation," said U R Bhat, ýmanaging director, Dalton Capital Advisors. "I don't think the matter should escalate too much and the market should be able to stabilise," he added.
Foreign institutional investors (FIIs) were net buyers to the tune of ~3,413.37 crore, provisional data provided by exchanges showed. The trading turnover, however, was high amid the expiry of September series derivatives contracts. The India VIX index, a gauge of market volatility, soared around 30 per cent as investors rushed to hedge their exposure anticipating further volatility.
"Markets may remain under pressure over uncertainty about geopolitical situation between two countries and take a wait and watch approach in the short term," said Dinesh Thakkar, managing director, Angel Broking. "In my view, once the current issue deescalates, markets will revert back to fundamentals, which remain strong for India."
The market breadth on Thursday was weak with only one stock advancing for every five declining on the BSE. Adani Ports, which fell 5 per cent, was one of the biggest losers among Sensex components, followed by Sun Pharma and ICICI Bank, which fell 3.8 per cent each. The mid-cap and small-cap indices fell around four per cent each. During the Kargil conflict in May 1999, the Indian markets had reacted negatively for a few days, but rallied sharply over the next one-month and threemonth periods following policy boost by the government.