India-Pakistan strikes: What analysts say about escalation, markets and risks

India’s targeted military strikes against Pakistan have left analysts debating the possibility of a further escalation in the tensions and its impact on the nations’ economies and markets.

The strike, which followed a deadly attack in Kashmir last month, has intensified the confrontation between the nuclear-armed neighbours.

Pakistan said it responded by shooting down five Indian jets and would respond if India attacks.

In India, the rupee weakened following the military action early Wednesday, while stocks pared early losses. Stocks in Pakistan slumped.

Rajeswari Pillai Rajagopalan, resident senior fellow at the Australian Strategic Policy Institute: “Things can go out of control, even if you really did plan on having a full out conflict. That’s something that the political leadership on both sides are mindful of. If you look at their repeated conflicts over the last three decades since both countries went nuclear in 1998, they have shown restraint.”

Manoj Joshi, fellow at the Observer Research Foundation: “There will be a Pakistan retaliation. The question is whether the reaction will be well thought out. If they attack military establishments, India will retaliate and the military action will go on.”

Michael Kugelman, director at the South Asia Institute of the Wilson Center: “What stands out about this crisis is the scale and intensity of these operations.”

Pakistan claims it has nothing to do with the attack last month and sees this as an unwarranted provocation, he said. “It’s not a surprise that Pakistan has responded with muscle as well.”

Dhiraj Nim, currency strategist at Australia and New Zealand Banking Group: “The Indian rupee is likely to weaken following the country’s strikes against Pakistan. The RBI can be heavy-handed with intervention today in case volatility spikes are much larger. While the impact of such events is usually transient, one will need to see further developments.”

Amit Kumar Gupta, Founder and Chief Investment Officer at Fintrekk Capital: Indian equity markets will not be affected in the short or medium-term by the military strikes that the nation and neighboring Pakistan conducted against each other, he said.

The India-UK trade deal, China cutting rates and injecting liquidity, potential US-India and US-UK trade deals to be announced this week are events that have a much larger potential economic impact on markets, he added.

Venugopal Garre and Nikhil Arela, analysts at Bernstein: “Historically markets have dropped to varying degrees during such events. Indian equity markets rebounded on all occasions and hence we believe buy the dip is the best strategy in an event the equity markets decline.”