Balakot air strike brightens chances of Modi 2.0; stay put with quality stocks: Experts

Indian market witnessed a gap-down opening on February 26 after news came in that Indian military jets crossed the Line of Control and struck down JeM camps in Balakot.

Experts said the tensions between the two nations are not new and markets would take it in their stride and inch higher after a knee-jerk reaction.

AK Prabhakar, head of research at IDBI Capital Markets & Securities, told Moneycontrol that the air strike has put to rest political uncertainty and has brightened chances of the current government coming back to power.

The last big war between Indian and Pakistan at Kargil in 1999, which lasted for 3 months, saw Sensex rising by over 30 percent in the same period. The S&P BSE Sensex rallied from 3,378 on May 3, 1999 to 4,494 on August 2, 1999 which translates into a gain of over 30 percent.

Hence, Balakot air strike could at best result in a knee-jerk reaction and the fundamentals of the Indian market still remain intact.

“It could impact the sentiment for a few days. However, as Kargil also showed that there is no long-term impact. At this stage, we should not be bothered about escalation and short-term market impact but look at what is best for the nation,” Sandip Sabharwal, Independent Advisor at asksandipsabharwal.com told Moneycontrol.

“Investors should use dips to buy as most global developments as well as the macroeconomic scenario in India is positive for equities,” he said.

Now the question is will it escalate into a full-blown war? Well, maybe not. Although it is too early to conclude anything, but experts feel that at best it is just knee-jerk reaction and dips should be used to enter markets.

VK Sharma, Head - PCG & Capital market Strategy at HDFC Securities is of the view that successful Indian strikes across the Line of Control, deep inside Pakistani territory, will not attract any retaliatory action, as the targeted training camps were working in violation of the UN Security Council direction given to Pakistan to not allow its territory to be used for abetting terrorism.

"The UN Security Council resolution was the first of its kind as China did not use its veto. I do not see it triggering a war as India has used intelligence, smart technology and has avoided any civilian casualties. We believe this is an opportunity to enter the markets," he said.

Here’s how D-Street reacted post air strike and what should investors do now:

Adrian Mowat, EM Equity Strategist

"We don’t think the market should react strongly towards the geopolitical tensions. The medium-term impact of such strikes is moderate as the news of air strike won't impact investments into India," Mowat told CNBC-TV18.

Well, investors will be little cautious, but nothing beyond that. The long-term India watchers have seen incidents between India and Pakistan before. Foreign investors will tend to look through these recent events.

It is likely that capital will go into China now at the expense of markets like India. China was the worst performing market in 2018, and the govt. there has been accommodative.

Nikhil Kamath, co-founder, Zerodha

The air strike conducted on 26 Feb seems largely driven by conjecture around the upcoming political events. The markets by afternoon seem to have factored this in and have largely recouped most of the losses from the morning session.

Going by what is being said there will be no real follow up from either party, and this could largely disappear into the shadows. Markets over the long term will continue on their path governed by inherent growth dynamics, agnostic of political and geopolitical tensions.

Vinod Nair, Head of Research, Geojit Financial Services

Political strategists believe that geo-political risk has turned for the worse with a possibility that this calamity can get extended. The market will remain watchful and eagerly assess announcements from both the sides to evaluate further risk

UR Bhat, Director at Dalton Capital Advisors told CNBC-TV18:

It was a non-military strike, so there won't be a deep correction in the market unless there is a big escalation of the strike. According to him, the market may shift its focus to general elections and the market movement will depend upon political situation from hereon.

Amar Ambani, President & Head of Research, YES Securities

Volatility is part and parcel of the equity market. It cannot be wished away at any stage. But it also keeps a market healthy. Sometimes lack of triggers can be the best trigger for the market. I do believe the market is poised for a big up move in the run-up to General Elections.

On the geo-political front, it’s an extremely proud moment for every Indian to hear about India’s air strike on terror camps across the LOC. The market may remain impacted for a day or two, but unless the situation escalates into a full-blown war (which is unlikely), the market will recover, just as fast.