Moneycontrol Pro Panorama | The drag from conflict and the lift from trade deals

Top gainers on the Nifty included Infosys, Trent, JSW Steel, Tech Mahindra, and HCL Tech

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

In 1999 when the Kargil conflict escalated and concluded with Pakistan retreating under international pressure, India’s economy grew 6.8 percent and beat the expectations of most forecasters including the International Monetary Fund (IMF). If we go back to the many conflicts and warlike situations between the two nations peppered across the shared history, the story on India’s economy remains that of resilience. Of course, capital markets did gyrate, volatility increased, and wealth eroded but all is well that ends well.

Fast forward to today, a similar escalation of tensions between the two neighbouring nations is currently on. The terror attack on innocent civilians in Pahalgam of Kashmir, and India’s retaliatory strike on terror camps in Pakistan and Pakistan-occupied Kashmir have only intensified the conflict. At the time of writing, the conflict has resulted in the shutdown of many airports, northern and western border states going on high alert and shelling on the border.

We pause here to point out that this newsletter may seem devoid of compassion since we are talking of money when lives may be at stake. But we take comfort in the fact that a country’s economic progress ensures the security of its future citizens and wars are not fought only on the physical battlefield anymore.

Since May 6, the domestic equity indices have declined about 1.5 percent and the exchange rate has weakened by a similar margin. The benchmark 10-year bond yield has climbed a modest 2-3 basis points, which is a movement seen on a normal trading day. Concerns that further declines in the Indian rupee and equities may be in the offing are warranted but there is no sense of alarm in the financial markets. We pointed out here that stock markets tend to bounce back from the threat of war or even an eventual war pretty quickly. There are many factors that can support the rupee this year beyond the short-term pain as we pointed out in this piece here.

One such factor is the erosion of the safe haven status of the US dollar. Ananya Roy, in her column here, explains in detail what this entails for Indian equity markets and how trade deals would determine market movement.

That said, any conflict causes a chill among investors, especially foreign investors. It would be unfortunate for dollar outflows to resume just when foreign investors have begun to change their view on the economy. It would also be horrible timing since there is a widespread uncertainty globally on trade and geopolitics, thanks to the US’s tariff policies and trade war with China.

This is where trade deals become important. The free trade agreement between India and the UK holds a promise of boosting the former’s exports and domestic employment since sectors benefited are employment intensive. The US has also announced a trade deal with UK where the 10 percent blanket tariff on all goods would stay but concession would be worked out sector wise. That said, experts have questioned the sturdiness of the deal and as this FT piece, free to read for Moneycontrol subscribers, explains, the trade pact could run in legal troubles. Parts of the deal may bother other nations, and the UK may end up undermining preferred nation status in some cases. Meanwhile, the Trump administration has promised more deals with other nations and perhaps talks with China as well.

The upshot is that there are persisting risks from the reshaping of trade relations between nations that involve India. For financial markets, these moving parts are more vexing than the conflict with a bellicose neighbouring nation. As such Pakistan may lose more economically if it pursues war. Our column here points out the impact of a war on Pakistan’s fragile economy.

As diplomatic machinery is churning to de-escalate tensions between India and Pakistan, the historical conduct of the two nations shows that the odds of a full-blown war are not high.

India’s economic growth may not get dented in the wake of a prolonged conflict, but the economy would get bruised in segments, as the tourism industry, airlines and infrastructure get affected. Also, redirection of focus and spending on defence would mean taking eyes off from other segments of the economy. That is a deal India does not want.

Investing insights from our research team

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Why this defence stock is our tactical pick this week

Tata Motors: A clear winner from the US-UK trade deal

Titan Company: Healthy Q4FY25 results, robust outlook

Asian Paints Q4: Growth slows as competitive intensity tightens grip

L&T: Navigating external risks with strong order book, robust balance sheet

Radico Khaitan Q4: IMFL adds punch to sales volume

Coal India: A sequential rise in volume off-take in Q4 in an overall challenging year

What else are we reading?

SC judgment on Bhushan Steel bankruptcy is a blow to JSW and Indian business

Are market linked debentures the smart bet amid the current downturn?

Can India go from assembler to ecosystem player in mobile phones?

Chart of the Day | Low rated NBFCs saw growth, profitability plummet in FY25

Personal Finance: Not the time to panic or add to portfolio risk

Britain’s trade deal with Trump may not be good news for the world (republished from FT)

Operation Sindoor: Why Pak Army is deliberately targeting Sikhs?

Tech and Startups

As India-Pakistan tensions flare, IdeaForge says its drones are already in action

Technical Picks: Apollo Tyres, Coromandel International, Tata Steel, Bharat Forge.

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Aparna Iyer
Moneycontrol Pro