FxWirePro: Market volatility continues in India as situation remains tense across LoC

Wild gyrations seen in Indian markets amid tense situation at Indo-Pak Line of Control (LoC).

• The situation along the Indo-Pak border has been tense since the deadly terrorist strike on a paramilitary convoy, killed almost 50 army men in the disputed region of Jammu and Kashmir on the northern part of India, earlier this month.
• It got heated yesterday morning local time as Indian fighter jets infiltrated Pakistani border and launched massive air raid in the Balakot region, believed to be the home of the biggest Jaish-e-Muhammad terrorist camp, a group that claimed the responsibility for the attack on Indian paramilitary force.
• Pakistan has vowed to answer India’s violation of Pak sovereignty at an appropriate time.  
• Despite Indian foreign minister Sushma Swaraj’s assurance of India’s desire for no further escalation, both side exchanging war rhetoric, as well as heavy firing across the border.
• A response attack by Pakistan could easily drag these two nuclear-armed neighbors into a bigger and wider conflict.

Financial market participants remain tense over the situation, leading to wild gyrations,

• India’s benchmark stock index Nifty50 is trading at 10810, down just 14 points from yesterday’s close. However, it has gyrated 190 points or more than 1.5 ATR.
• Similarly, the Indian rupee has gyrated about 90 paise, more than 2 ATR.

We expect the Indian rupee to weaken against the USD amid the ongoing tension and markets to remain volatile.