It was a Black Friday of a different sort for Indian stock markets last week, with the Sensex opening 1,366 points lower. Spooked by the rising India-Pakistan tensions, traders indulged in a selloff that wiped out as much as ₹4 lakh crore from the market capitalisation. India’s VIX, a measure of market volatility, shot past 8 percent, the highest level seen in over a month. The rupee extended its decline on the same day, a day after logging the worst session in over two years. Friday’s market movements were starkly different from the previous sessions. While the Indian bourses maintained steam until Friday, Pakistan’s benchmark KSE30 index crashed 7.2 percent on Thursday, triggering a one-hour trading halt. In just three days last week, the Karachi bourse lost ₹1.3 lakh crore in capitalisation.
While the KSE30 has plunged more than 14 percent since the Pahalgam attack, India’s stock market has risen about 1 percent over the same period. However, Friday saw a trend reversal with Pakistan’s broader KSE100 index staging a strong comeback, gaining 2,200 points in the morning, as investors were keenly looking ahead at the upcoming IMF board review to sanction the next tranche of its bailout package, which was eventually cleared. On the other hand, both the Sensex and the Nifty50 fell 1.10 percent each. Analysts believe Friday’s rout was not as pronounced as it could have been, thanks to a better earnings season.
Moreover, foreign portfolio investors have returned as net buyers, while tailwinds such as interest rate cuts, a pay commission rollout and a likely reduction in fuel prices are expected to spur domestic consumption. They will also keep an eye on the US-China trade talks, whose second round was underway in Geneva on Sunday. Lastly, the India-UK trade deal, signed after a long wait of three years, has raised expectations of striking a similar deal with the US. If that happens, it would aid exports and thereby our growth prospects. All said, markets do not prefer protracted, full-blown conflicts that deplete human, economic and other strategic resources. If the ceasefire holds despite the provocations, it would be a cause for buoyancy among investors. In any case, the Indian indices are expected to withstand short-term volatilities and fare better, thanks to the strong macroeconomic fundamentals.