Indo-Pak war and its impact on market

Investing Strategies
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We can either be in an early stage of a bull market or we can also be at an early stage of India Pakistan war. During 1999 Kargil war, India launched air strikes on May 27 that year to flush out the rebels, causing the Sensex to tumble 2.8 percent on the day.
My understanding is, 1999 was early stage of the dotcom boom so global sentiments overshadowed indian war, so it did not have a large impact but it may not be so now.
People who have been in market since 1999 please share your thoughts and experience.

Resources:

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I dont see a war coming, I am pretty sure the leaders of the countries know the hit on economy involved if indulging in a full fledged war. As per the press release, there are no plans in future for any operations and market should resume tomorrow.

But I am happy that the govt is taking action and not just sitting idle issuing press releases. I hope they take inputs and secure the border which will stop all these terrorists from sneaking in.

Cheers
G1

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Good timeline of events by The Hindu.

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In my estimate, global support especially the support from China will influence how Pak will behave from here. While a full fledged war is probably a low in terms of probability, I must say that this issue is not going to end here. There will be punches and counter punches thrown since afterall, that has been the way, it has been all these years

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Also, the Uri attack was a way of poking India to act violently and undermine its bet for the UNSC permanent seat. We should be mindful of the fact that, within hours of the attack, Pakistani army had greatly fortified their positions. This, could not happen so fast, if they were not expecting an immediate reply.
The fact that India, by acting, may have walked into a trap diplomatically, can not be ruled out IMHO. While no one is foolish enough to declare war over this, I believe Pakistan would also try to up the offence, as India has accepted their challenge. So, I don’t think we’ve seen the last of this.

Apart from the above logic, something had to be done urgently to quell the image of India as a Soft State. A strong, befitting reply has been given by our brave and capable Army.

Awaiting further developments.

DISC: Nearly fully invested. Eager to jump into CASH at first sign of a war coming.

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IMHO there is minimal possibility of full fledged War & still certain counter responses cannot be ruled out in future as well.

Both the countries are trying to plan out their Strategies & Preparations but Global community (in this era of Globalization & not that of 1965 & 1971) will ensure, with their intervention, that nothing of the sort of mass destruction happens & peace prevails in the region.

Also India is a growing & strong economy, which will still be comparatively less impacted in terms of Financial consequences , but Pakistan which still does not have any significant presence on the map of World Economics, will be a victim of its own sown seeds, if it happens.

Now coming to the point of Market Reaction to this key event:

1st & foremost we have to make our minds reminded that repercussions of all such Geo-political, BREXIT, REXIT or key events of similar instability, definitely are short-lived & over-hyped & reacted by Markets, as if Planet is going to get extinction by tomorrow.

For Long term investors like us, these are the opportune times of uncertainty, to keep our guns loaded. Ammunition should be ready to exploit these rare opportunities, once in a while.

What I am opining here is what I am implementing personally & hence as Cash component was too limited available today with me, even being leveraged at this point in time, but did a good shopping today, thanks to May Core-Satellite-Tracking Strategy (Trio) of my PF Allocation.

Reshuffled today from Satellite & Tracking PF, to Core Long Term Holdings.

Views or opinion may be totally personal in nature & should not be considered as any recommendation of my Startegy. Due diligence should be done for taking any further course of action, in eventuality of such situation prevailing for a bit more than anticipated time.

Regards,
Bharat

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That is a very good point. Another way to see it. But a full fledged war will be distant. there will be tension for couple of weeks. for now i expect firings along LOC for the next few weeks. In today’s global economy no one is going to win the war, It will be a big loss for all the parties.

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Just look at the cash buying figures…today FIIS bought 3400 crores and DIIS bought 1600 crores…only bakra retail investors sold into the fall…and Karachi stock exchange index actually rose(intraday)…does this look like a war is round the corner?

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Why would retail investors’ behaviour be so different ? Is retail investors’ volume so high to impact the overall market ?
Generally retail investors are the slowest to react on news.

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It is the HNIs/FPIs and other institutions that panic. I also suspect lot of slush money getting redeemed/evacuated with the whiff of war. Another thing is that today was expiry and retail might have collected cash for margin calls.

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first of all kudos to what the indian army did. I AM PROUD OF IT as i am sure all of us are. now, the pakistani army which calls the shots there, have said that there were no surgical strikes but as usual india initiated firing at LoC, so it looks they are in denial and will not opt for a F2F confrontation but will continue with what they have been doing for decades. On top of it China’s has taken a neutral stand asking both countries to resolve the differences so that should further dampen the spirits of pakistani army and put any offensive mindset of hold.

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Thanks. Data is here:
http://www.moneycontrol.com/stocks/marketstats/fii_dii_activity/?classic=true

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Skirmishes like this come and go, unless the two sides escalate from here we should be fine. The only thing that worries me is that Pakistan may have been cornered here on all sides, so the possibility of them doing something to save face cannot be ruled out in which case tensions will continue for some weeks.

The bigger news of the day that investors need to ponder over is the oil production cut by OPEC. Of course we will not talk about this in India but that is a bigger impact on markets in the medium term

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It would be great if you could create new threads only to discuss new stock ideas that haven’t already been created. I don’t see what you plan on achieving by discussing daily news flow or events. Is anyone here a military / diplomatic / international relations expert? You guys would only share your opinion on what you think and feel might happen which adds zero value. It would be great if you could do that on the moneycontrol board and not here. Thanks

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Interestingly Dow Jones also showed a similar pattern yesterday, had a steep freefall towards the mid of the day. If they had to react to India’s surgical strike they would have opened gap down. Wondering if something else could be the reason.

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Ishan, some uncertainty about Deutsche Bank made the US markets fall down.

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Cash market FII figures could have included Kotak Mahindra block deals of 3000 cr +

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Guys…lets not discuss daily market movements and news happenings on this forum. There are other threads which were started to discuss which stocks to buy when markets react to certain events. We can post about our stock recommendations there. Imho this will add much more value than discussing why markets went up down or did not.

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On that note, do we have a specific thread where folks can discuss macro hypothesis? I am of course not referring to daily market movements but something on the lines of this -

  1. I believe that the global markets are discounting some element of fiscal spending by the developing economies in combination with debt monetization by central banks (call it QE or whatever), however if that were indeed so commodity prices have to start reflecting this sooner or later. Can we have sustained equity market run without commodities eventually coming around to the same story?

  2. Days of globalization and trade integration maybe temporarily over, what we will see is increased trade protectionism and policies of beggar thy neighbour through FX devauation/intervention. So what we may see is VIX to be lower than historical numbers generally but show spikes of real intensity once in a while (works like air turbulence), if so how are folks hedging their portfolios?

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I don’t hedge my portfolio but I have thought about this and if I were to hedge my portfolio, I will buy index puts or a collar (depending on the circumstance) when VIX is low.
A low level of VIX is a main condition especially when buying puts (and not a collar) as option prices are proportional to implied volatility. As you rightly said, VIX will spike once in a while making those puts valuable.
Central banks with all their dovish policies are virtually selling puts for free so that offers a implicit insurance to a risky asset portfolio. When markets gets too complacent (and hence a low VIX) is when a surprise causes volatility.
As per my calculation of deltas etc, at VIX of 13, fully hedging a portfolio will cost 4% annually. A little expensive, but I think it is not going to get any lower.