Shankar Sharma's contrarian view: Escalation can be a 'big problem' for ageing bull run

“The Indian markets were already on shaky grounds prior to this development and this will only add to the concerns. Since last September, markets have been trending downwards and so the escalation cannot be viewed as a good outcome,” said Shankar Sharma.

Veteran market investor Shankar Sharma fears that the precision strikes inside Pakistan, in retaliation to the Pahalgam terror attack, is an escalation that could add to the headwinds for domestic equities, given that stocks are already on shaky ground since last September’s selloff.

“The Indian markets were already on shaky grounds prior to this development, and this will only add to the concerns. Since last September, markets have been trending downwards and so the escalation cannot be viewed as a good outcome,” said Sharma.

Last night, Indian armed forces successfully conducted precision strikes on nine terror sites inside Pakistan as part of Operation Sindoor, in response to the Pahalgam terror attack on April 22.

Many market participants are of the view that since past instances of Indo-Pak tensions did not significantly impact equity markets, hence, this latest round of escalation too would not cause any long-term hit on the sentiment. However, Shankar Sharma has a contrarian view.

“I don’t think one can look at the latest conflict in the same light as earlier ones. Also, just because one thinks it is identical, does not mean it will have the same impact again. The actual impact depends on the market conditions itself. Our bull run is ageing and we are in the fifth or sixth year of the rally. At this stage, such developments can cause a big problem,” Shankar Sharma said.

The development will definitely impact the overall market sentiment, and certain sectors could be more vulnerable than others, he added.

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On February 26, 2019, when the Indian Air Force had conducted air strikes on terrorist camps in Balakot, Pakistan, the Sensex fell by 239 points while Nifty 50 lost 44 points. However, the following day, markets bounced back to eventually close flat.

Also Read: India Strikes Pakistan: Market impact would be temporary: A Bala of Aditya Birla MF

After the Pulwama attack in 2019, markets saw a mild reaction, dropping just 0.2 percent during on February 15, 2019. In contrast, the 2016 surgical strikes following the Uri terror attack saw a sharper fall, with the Sensex dropping over 400 points and Nifty 50 down by 156 points.

During the course of the 1999 Kargil war, the Sensex and Nifty each gained around 33 percent. Over the three-month period, the Sensex surged 1,115 points, while the Nifty climbed 319 points. Read More

Benchmark indices Sensex and Nifty 50 has not seen any significant impact of the retaliatory strikes on May 7, with both benchmark indices only marginally lower by mid-day trade.

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