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Attack on terrorist camps has no adverse impact on economy

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impacts on economyThe Indian Air Force attacked the terrorist camps in Pakistani territory in the early morning on February 26, 2019, 12 days after the Pulwama terrorist attack. However, the initial response to the financial market has been negative, but it should be considered temporary. Such attacks made for the country are unlikely to have a negative impact on the financial market as the situation of the Indian economy is currently strong. By the way, such attacks in the past have also not adversely affected the financial condition of the country.

 Kargil battles influence on the financial market

The Kargil war between India and Pakistan was fought in Kargil during May to July 1999. During the above period, the major indices of the Indian stock market declined in the early stages, but in the following days, they had seen improvement. Within three days of the start of the fight, the Sensex and Nifty were down 286 and 79 points respectively, but in the following days, they saw a surge of 652 and 191 points.

During this period, the rupee declined by 1.2 per cent compared to the dollar, while the 10-year-old G-Secs had a minor change of 2 BPS. In the fiscal year 2000, India’s fiscal deficit was around 6 percent. Interestingly, the rupee remained at roughly the same level during the years after the financial year 2000, indicating that the value of rupees is highly affected by external factors.

As a whole, the Kargil war had a positive impact on the market. On the basis of the base year 2004-05, the economy grew at a rate of 8 per cent compared to an increase of 6.5 per cent a year ago, indicating that no negative impact on such attacks has taken place on the Indian economy.

Market Indicators during the Kargil War
 Indicators 26-May-99 26-Jul-99 Change
Sensex 3973 4625 652
Nifty 1136 1326 191
10-Yr Gsecs (%) 11.76 11.74 -0.02
Rs/USD 42.8 43.3 1.2%

 Uri Surgical Strike Effect on Financial Market

On September 29, 2016, India announced that it had “surgical strike” against the terrorist launch pad across the Line of Control in Pakistan-administered Kashmir and killed many militants. After the surgical strike, the major indices of the Indian stock market witnessed a decline for some months, but the situation became normal soon.

After three months, the Sensex and the Nifty were down 1,462 and 491 points, respectively, but they were closed with a rise of 3,456 and 1,198 points respectively in the next year. Not only that, after 1 year the value of the rupee was better than the US dollar at 2.36 per cent, while 10-year-old G-Secs increased 20 BPS. In this case, the overall effect of the Uri Surgical Strike on the market has been positive.

Market Indicators Post URI Surgical Strike
  29-Sep-16 29-Oct-16 29-Dec-16 29-Sep-17 Change
(after 1 year)
 Indicators Strike Day Post 1-month Post 3-month Post 1-year
Sensex 27828 27930 26366 31284 3456
Nifty 8591 8626 8104 9789 1198
10-Yr Gsecs (%) 6.86 6.82 6.52 6.66 (-)20 bps
Rs/USD 66.86 66.72 68.10 65.28 (-)2.36%

It may be said that the air strikes made on February 26 will not have any adverse impact on the financial market. Through this attack, India has made it clear that there is no attempt to take a test of its patiance. Significantly, due to India’s clear foreign policy stance, the financial market can adapt itself to the situation, which will surely have a positive effect on the financial market.

By Satish Singh

(Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of AFTERNOON VOICE and AFTERNOON VOICE does not assume any responsibility or liability for the same.)
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