Indian stock market: A terrorist incident in Kashmir has heightened geopolitical tensions between India and Pakistan, which has alarmed investors and resulted in some profit-taking. The rising tensions may cause market sentiment to be cautious.
The Sensex and Nifty 50, two domestic equity indices, have increased by 1% during the last five days. The BSE Sensex and Nifty 50 both saw weekly gains of 0.80%, closing at 79,212.53 and 24,039.35, respectively. The India VIX rose 11%, partially reversing the previous week's 23% decrease, as market volatility increased marginally.
Following a strong start bolstered by favorable global indicators, Indian benchmark indexes experienced a precipitous fall. Profit booking was the reason for this, as tensions between India and Pakistan increased across the border after the terrorist strikes in Pahalgam, Kashmir. Nifty closed at 24,039 (-0.9%), down 207 points.
The exception, Nifty IT, closed the day up 0.7% thanks to yesterday's surge in the tech-heavy US Nasdaq index. Since tourism is predicted to suffer following the attack on tourists in Kashmir, hotel and aviation stocks were under selling pressure.
What does history indicate?
India's powerful internal economy has always allowed it to demonstrate remarkable resilience to geopolitical factors.
In the short term, foreign investors are probably going to take a wait-and-watch stance in order to assess the geopolitical situation. Given the robustness of the domestic economy, India has demonstrated significant resilience during geopolitical circumstances based on its previous performance. It is reasonable for long-term investors to view this as a chance to buy high-quality stocks or sectors during future declines in order to profit in the long run.
Over the coming days, the Indian market may become more volatile due to geopolitical developments between India and Pakistan. Indian equity markets have never seen correction of more than 2%.
Even the 2001–02 Parliament attack correction was probably more impacted by external causes, particularly the roughly 30% decline in the S&P 500 at the time.
Conflict-related equities market corrections averaged 7%, with a median correction of 3%.
Even in the case of a significant escalation, we think the Nifty 50 is unlikely to correct more than 5–10% based on historical precedent and current global risk pricing. Investors who are currently using the 65:35:20 method ought to keep their allocation in place. Investors with a portfolio equity gap should make an investment right away to align with the 65:35:20 strategy allocation.
In light of the war between India and Pakistan, how is the Indian stock market expected to perform?
Investors will keep a careful eye on any further military developments between India and Pakistan over the weekend because they will be crucial to Monday's opening of the domestic market.
With a gap-up start to the week, Nifty surged above the pivotal 24000 mark. The index continued to rise steadily as the week went on.
Rising geopolitical tensions between India and Pakistan caused a steep sell-off on Friday, wiping out the gains from the previous week. Thankfully, the bulls recovered well in the second half of the day, assisting Nifty in closing with a slight weekly gain of 0.79%, barely surpassing the 24000 threshold.
The Nifty has established a robust bullish breakthrough on the charts by topping the swing highs from February to March. On Friday, the breakout zone between 23900 and 23800 offered vital support and is still a significant important level. A more significant correction into the 23500–23300 zone may occur if geopolitical tensions increase or if this support is compromised.
"On the upside, the 24250–24350 level represents immediate resistance, even though the overall trend is still optimistic. The major uptrend would be confirmed to continue if there was a rise above this zone. The subsequent wave of the advance might not be as seamless as the most recent surge, so traders should exercise caution and keep an eye on these crucial levels.
The Nifty Midcap Index also improved after encountering resistance at its 200 DSMA. It is advised to take a cautious approach to midcap equities until this level is clearly exceeded.
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