Benchmark indices opened marginally lower but stabilized following India’s precision strikes on Pakistan-based terror sites via Operation Sindoor, carried out late night on May 6.
The strike targetting terror camps across the border and in Pakistan-occupied Kashmir added to investor unease and fuelled uncertainty, with some degree of caution already in prices ahead of the US Federal Reserve's policy decision tonight.
At 9.40am, the benchmark Sensex rose 0.18 percent or 146 points to 80785 points while Nifty 50 lost 0.21 percent or 40 points to 24418 points.
Prashanth Tapse, Senior Vice President (Research) at Mehta Equities said the market direction will depend on three key developments –potential escalation by Pakistan and India’s next response, progress on global trade tariffs, and the US Fed’s interest rate decision, slated on May 7. The Nifty 50 index remains volatile with critical support seen at 24,171, Tapse said.
Read More: Latest updates on Operation Sindoor and top reactions
The military strikes targetting terrorist camps in Pakistan and Pakistan-occupied Kashmir have also turned the attention to potential currency market implications. While the rupee weakened by 18 paise amid thin offshore trading, the reaction was relatively modest. Some speculative dollar buying by importers and traders is anticipated, but the Reserve Bank of India is expected to step in to curb any significant depreciation, experts have said.
So far, there are no verified reports of any retaliatory military action by Pakistan. As long as cross-border retaliation remains limited, market volatility is expected to be contained, said experts.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP said that FIIs may reduce exposure amid uncertainty, but any selling is likely to be moderate unless there is further escalation. Bhanshali has advised investors to stay calm, and hedge short dollar positions, advicing them to wait for potential RBI intervention in the rupee market.
On May 6, benchmark indices Nifty and Sensex had ended lower, breaking a two-day winning streak, as 12 out of 13 sectoral indices closed in the red. The Midcap 100 and Smallcap 100 indices captured the broader weakness. On a year-to-date basis, the broader market indices have fallen 6.5 percent and 13.5 percent respectively, highlighting continued pressure on non-frontline stocks.
Despite geopolitical headwinds, consistent foreign institutional investor (FII) buying for the 14th consecutive session - supported by a weak dollar - has provided resilience to the markets. This strength is further supported by favourable macroeconomic factors such as softening crude prices, easing inflation, and the Reserve Bank of India's accommodative stance, including rate cuts and liquidity support. However, the fear of an escalation in cross-border tensions is expected to keep markets in a narrow range in the short term.
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