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Indian stock markets have largely remained stable during periods of military or political tension with Pakistan, according to a new analysis by Anand Rathi Research.
The report highlighted that, except during the Parliament attack in 2001, Indian equities did not fall more than 2 per cent during such high-risk events. It said "Except during the Parliament attack in 2001, Indian equity markets did not correct more than 2% during periods of high tension with Pakistan". The only significant drop occurred after the Parliament attack in 2001-02, when the market corrected sharply. However, the report points out that this fall was likely influenced more by global factors, especially the 30 per cent decline in the U.S. S&P 500 index during the same period, rather than by the India-Pakistan conflict alone. On average, Indian stock markets corrected around 7 per cent during major geopolitical events, with a median correction of about 3 per cent. Even in a situation of major escalation, the report suggests that the Nifty 50 index is unlikely to fall more than 5-10 per cent, based on past data and current global risk pricing. The research comes at a time when tensions between India and Pakistan have increased following a recent terrorist attack in Pahalgam. The attack led to the tragic deaths of 26 civilian tourists and has raised fears of possible military retaliation. In light of this, Anand Rathi Research studied past market behavior to give investors a better understanding of potential market movements. The analysis included four major India-Pakistan confrontations since the Kargil War in 1999. It also looked at 19 other wars or war-like situations involving G20 nations over the past 25 years. For each event, the study considered the performance of stock market indices from the day before the conflict began. In cases where conflicts lasted more than a year or are still ongoing, the lowest market point in the first six months was taken into account. For shorter conflicts, the lowest point during the event period was studied. For investors currently following the 65:35:20 strategy--where 65 per cent is allocated to equities, 35 per cent to debt, and 20 per cent to alternatives--the report recommends maintaining the current allocation. It also advised investors with a gap in their equity exposure to invest now to align with this strategic asset allocation. The report said "Investors who have any equity gap in the portfolio should invest now thereby getting aligned to the strategic allocation of 65:35:20". (ANI)
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