Stocks, rupee pare declines as investors weigh impact of attacks

Bloomberg

Indian stocks and the rupee bounced off the day’s lows as investors assessed the impact of the rising tensions between India and Pakistan against the backdrop of falling oil prices and buoyant emerging markets.
The S&P BSE Sensex tumbled as much as 1.4 percent and the rupee lost 0.5 percent in reaction to an air strike on a terrorist camp by Indian jets inside Pakistan. The drop in stocks took the sheen off Monday’s jump that had erased the market’s year-to-date loss. The Sensex ended the day to lose 0.7 percent and the rupee was trading 0.1 percent lower.
“The reason why you are not seeing such a negative sentiment in India is simply because rest of the emerging markets are doing fairly well, oil is lower and yields are lower,” said Ashish Vaidya, head of trading at DBS Bank Ltd. in Mumbai. “That’s providing support to the rupee.”
The outlook for emerging-market stocks has improved, thanks to growing optimism that the US and China will resolve their trade dispute and the dollar could weaken as the Federal Reserve pauses its rate hiking program. Prices of oil — India’s top import — extended losses on Tuesday after tumbling the most in four weeks after Donald Trump’s criticism that prices are too high.
Foreign Secretary Vijay Gokhale said in New Delhi that India carried out strikes in Pakistan following an attack in Kashmir this month in response to intelligence that indicated Jaish-e-Mohammed was planning more.
His statement has been “carefully worded to convey that the target was only the terror camps and there haven’t been any civilian casualty,” said A. K. Prabhakar, head of research at IDBI Capital Market Services Ltd. “Stocks may stay volatile for a couple of days as investors watch on how the other side responds to this action.”
The rupee is Asia’s worst performing currency this year ahead of general elections due by May where Prime Minister Narendra Modi faces a tough fight from opposition parties.
The yield on the most-traded 2028 bonds was up one basis point to 7.59 percent, while spreads on State Bank of India’s 2024 dollar bonds widened five basis points.

Some analysts said that strikes may boost equities as it will aid Modi’s electoral prospects.

“The positive perception to the Modi regime will aid valuations, even as they look expensive,” said Chokkalingam G, managing director at Mumbai-based Equinomics Research & Advisory Pvt.