Missile Strike: Mumbai Markets Unfazed, Karachi Bourses Bleed

The KSE-100 marginally recovered, but has dropped again to remain on a thin edge. At the closing of the day’s session, the Pakistani stock index suffered visible losses, closing at 1,10,047 points, almost 3,500 points lower than yesterday's close.

The BSE Sensex, though slightly jittery — it opened close to 700 points below the overnight value — but recovered within 10 minutes of the bell. After another half an hour, it was up by 200 points beyond the 80,000 mark.

In contrast to the Pakistani stock market, it has been a day of calmness at the Indian bourses.

The Indian benchmark stock index remained relatively much more stable and closed at 80,747 points, more than 100 points higher than the previous day.

A Day Of Contrasting Pictures, But Why?

The plunging Karachi Stock Exchange’s main index in the early hours of trade showed signs of panic. Resultant selling swept the market as more and more investors started processing the news and possibly braced for possible retaliation.

However, the Sensex remained resilient. It opened with a slight wobble, but recovered in a flash and remained mostly flat throughout the day. The performance of Nifty has been no different. Both indices are seemingly upbeat due to strong foreign institutional investment (FII) inflows.

The Indian Government’s press briefing early on the day also created the perception in the market that the military action was non-escalatory. As a result, the market largely priced in the after-effects, at least for today.

Indian equities have been effectively cushioned by steady Foreign Institutional Investors' buying of over Rs 43,940 crore in the last 14 sessions. A weakened US dollar, lower crude prices, and moderated growth in both the US and China were the main factors behind this sustained FII inflow.

It seems like the market acknowledged India’s expressed desire to avoid further escalation. V K Vijayakumar, Chief Investment Strategist of Geojit Financial, said, “The market is unlikely to react significantly since the retaliatory strike was widely expected and already priced in.”  

On the other hand, Pakistani investors were already jittery due to recent market volatility and a series of negative economic headlines. No wonder, investors ran to the exit door, possibly triggering a cascade of sell orders and a sharp plunge in the index.

What About Tomorrow?

Though the Indian stock market shrugged off the initial jitters, day traders will keep a close watch on three key triggers — any further military moves, new developments in India’s FTA negotiations, and the US Federal Reserve’s monetary policy decision later today.

The volatility, however, is likely to persist as unfolding geopolitical situations can affect the movements in benchmark indices. Any unexpected military escalation or negative global economic cues can disrupt the present calmness in no time.

The KSE-100 would remain under tremendous pressure as Pakistan’s establishment engages in retaliatory rhetoric. Any future de-escalation move may help in stabilising the market, but history shows that politics always trumps economics in Pakistan.

Currency Effect

The stock market and economic mood in the two markets also reflected on their currencies. The Indian Rupee strengthened mildly from Rs 84.79 to the US Dollar in the morning, to Rs 84.75 by evening. The Pakistani Rupee fell from Rs 281.25 to Rs 281.37 by the end of Wednesday.

The Pakistani Rupee, which at one time used to trade one Indian Rupee for one Pakistani Rupee, today trades at almost three-and-a-half Pakistani Rupees for an Indian Rupee.