D-Street set for gap-down opening as India-Pakistan tensions mount

Rising India-Pakistan tensions spark caution

Indian markets, which have so far discounted a full-fledged war between India-Pakistan, are set for a gap-down start on May 9 as tensions rise along border. The Indian armed forces intercepted several drone and missile attacks from Pakistan at different locations along the western border yesterday and several districts have been put on high alert. At 6:35 AM, GIFT Nifty was trading at 23,944, down 1 percent (245 points), indicating a weak start for Dalal Street.

This nervous mood caused by border tensions was also seen in the sharp drop in Indian ADRs (American Depository Receipts). Stocks like Infosys, Wipro, and HDFC Bank fell between 1.5 percent and 5 percent. MakeMyTrip led the losses, dropping by 10 percent.

Market experts believe that a 1 to 2 percent drop in the main indices would be quite normal today due to investor concerns about a possible escalation of the conflict.

ALSO READ: Gift Nifty, India ADRs see sharp sell-off following escalation in India-Pakistan conflict

“A two percent drop at the benchmark level is normal. Investors should avoid reacting in panic, as making decisions during emotional moments usually leads to mistakes,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

Tensions with Pakistan increased after strikes were launched from Pakistan targeting Jammu, Pathankot, and Udhampur. India's S-400 defence systems intercepted several drones and missiles. A high alert has been issued in Delhi, and all schools and colleges have been closed in Jammu & Kashmir and Punjab. The Ministry of External Affairs is expected to hold a press conference this morning.

Given that the markets have been rangebound from the past 7-8 sessions, Dhupesh Dhameja, Derivative Research Analyst at Samco Securities said Nifty has not been able to break past the strong resistance zone between 24,400 and 24,500, where a lot of Call options have been written, showing that buyers are losing momentum.

“India VIX has jumped over 10 percent and crossed the key psychological level of 21. This clearly shows rising nervousness in the market, which could lead to sharp swings and high intraday volatility. Until Nifty moves above 24,500, the cautious mood will continue, and a 'sell on rise' approach is likely to remain,” he said. He also pointed out that 24,200, 24,000, and 23,800 are key support levels for Nifty.

In the derivatives market, the Weekly Option Chain showed significant open interest in both in-the-money (ITM) puts and calls, which means there's no clear trend. However, in the monthly option chain, ITM puts were being closed while new positions were added in ITM calls, suggesting a slightly bearish mood is setting in.

“Considering the high volatility and uncertain geopolitical situation, traders might want to use a Put Spread strategy. This gives limited risk while allowing participation if the index moves lower,” said Preeti K Chabra, Founder of Trade Delta. She suggested buying one lot of Nifty 23,000 Put at 99 and selling one lot of Nifty 22,000 Put at 59.

Globally, things looked calmer. US markets closed higher overnight. The Dow Jones Industrial Average rose by 254.48 points or 0.6 percent, the S&P 500 gained 0.58 percent, and the Nasdaq Composite went up by 1.07 percent.

President Donald Trump said that 10 percent will be the floor for his tariffs on imports from other countries that seek to reach trade agreements with the United States. Trump’s comment came as he discussed a new trade agreement with the UK.

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