Stocks in India and Pakistan are set for a relief rally following a surprise ceasefire agreement between the two nuclear-armed neighbors on Saturday, as investor focus shifts back to improving economic outlooks, according to a Bloomberg report.
Foreign investors, who had been on a 16-day buying streak in Indian shares until the clashes flared up Friday, may resume flows as volatility subsides.
Meanwhile, in Pakistan, the International Monetary Fund’s approval of $1 billion in immediate disbursement along with a new $1.4 billion plan for climate resilience will be a booster for its fragile finances.
“Short covering and deployment of idle funds will lead to a spike in broad markets on Monday,” said Mumbai-based Abhay Agarwal, chief investment officer at Piper Serica Advisors Pvt. “The focus should shift back to fundamentals.”
Investors had been nervous. India’s NSE Nifty 50 Index slid more than 1% on Friday – its steepest fall in over a month – while the rupee was one of Asia’s worst performers last week. Bond yields crept higher as risk premiums widened, although debt purchases by the Reserve Bank of India helped limit the declines. Pakistan’s key stock index is down 9% since the April 22 attack in Kashmir, which prompted India to retaliate.
India’s bonds and foreign currency markets are closed on Monday for a public holiday.
With the immediate geopolitical risks easing, investors are expected to pivot to positive signals in India, including hopes for an early US trade deal, ample liquidity, and expected rate cuts by the RBI.
In Pakistan, traders anticipate a relief rally, as border tensions overshadowed a surprise interest-rate cut by the State Bank of Pakistan and prospects for additional IMF funding.
“Assuming nothing changes from today onward, I see the Pakistan stock market hitting a 5% upper circuit,” said Mohammed Sohail, chief executive at Karachi-based Topline Securities Ltd.
Still, the threat of renewed tensions remains, as India has yet to lift its abeyance on the Indus Water Treaty – a move that could harm a large part of Pakistan’s farm output.
Meanwhile, a top Indian diplomat said that Pakistan violated the truce just hours after it was declared, a claim Pakistan has denied.
“There is still some uncertainty around the pause in fighting and the language from both sides will be important to monitor going ahead,” said Tejas Shah, head of derivatives trading at Equirus Securities. “I don’t think we will see a 4-5% move in the Indian market Monday. If we do, some investors will come in to book profit.”