The Indian market (Nifty Future) closed around 10823 Tuesday, slumped by almost -0.59% and well-off the session low of 10725.15 made earlier on “risk-aversion”. This follows amid higher geopolitical tensions after India launched a major “air strike” of 1000 kg bombs (payloads) on Pakistan’s JEM terror camps (Balakot), destroying those completely, and claimed to kill 200-300 terrorists in the process.
But Nifty recovered and made a session high of 10893.10 in a day of volatile trading amid institutional buying support (on nationalistic line) and as the latest “surgical strike” may be “one & done” (as evident from PM Modi’s speech). The market sentiment was also supported by the prospect of another “NAMO” win in the forthcoming election after the latest “surgical strike” and a normal monsoon this year as predicted by the private weather forecaster Skymet on Monday.
Although Pakistan acknowledged the air strike, it denied any major casualty and downplayed the “surgical air strike”. As a reminder, India’s action is in retaliation of the Pulwama (Kashmir) suicide attack on Indian CRPF convoy by alleged JEM terrorist 12-days ago, which killed almost 44 CRPF personnel and wounded many more.
After the latest Indian “surgical strike” report early Tuesday, there was some global “risk-off” sentiment, Yen inched up slightly and Dow/SPX future slumped, while India’s Nifty tumbled almost -1.5%. The market is concerned as after all, this is a dangerous and delicate geopolitical situation between the two major nuclear neighbors and Trump is also concerned about it, while China is supporting Pakistan indirectly as an “all-weather ally”. China’s interest/concern may be its huge infrastructure investment in Pakistan’s terror area.
But Nifty recovered as considering all the pros and cons, India may not like to escalate the “surgical strike” into a major conflict or a full-scale war until Pakistan retaliates seriously. Ahead of the general election, the Indian government now urges Pakistan government to dismantle the remaining terror camps of its own on its territory rather than actively supporting terrorism in any form. The purpose of the BJP/NDA led Indian government has been served through the latest “surgical strike” and it could help Modi for a big win in the coming election on nationalistic sentiment across the nation, leaving aside some core economic and other issues in the backbench.
The market was apprehending such “surgical strike” soon after the heinous Pulwama suicide bombing on 14th February (ahead of the general election in line with 2016 “surgical strike” after Uri incident ahead of the UP election and Kargil conflict in 1999, both led by BJP/NDA government). And after this “surgical air strike”, the market is now quite relieved (after initial knee-jerk reaction) that its “one & done”. There will be no major conflict or a full-scale war with Pakistan, considering their fragile economic conditions and one & above all, Trump (the US) will be dead against it, considering a significant number of US troops are still in Afghanistan.
The Indian market also jumped after PM Modi’s overall soft speeches in an election rally, where he refrained from any comments to further attack Pakistan’s terror camps. As per Indian sources: “This was an intelligence-based counter-terror strike not a military action for sake of war. Have demolished entire terror set up in the suicide bombing training center in Balakot, and over 300 terrorists were eliminated in the covert operation by Indian Air Force”. The strike was aimed at only eliminating terror launch pads and not any civilians in a remotely located JEM terror camp at some hilltops in the area.
The market is getting a boost on the better prospect of a stable BJP/NDA government after this “surgical air strike” on Pakistan territory by Indian Air Force (IAF) for the 1st time since 1971 war. The market was also helped by buying support from DIIs as-well-as FIIs and retail/HNIs in line with nationalistic/patriotic sentiment. But the situation could turn worse if Pakistan decides to escalate the same with active/passive support of China rather than dismantling the wide terror network in the country.
Again, considering all the pros and cons, China may not support Pakistan in such war acts against India, while the US, Russia, the EU, Japan, and all other major countries are supporting India as a major terror victim. Meanwhile, China called for “restraint” after India’s “surgical air strike” and urged India to carry out its fight against terrorism through “international cooperation”. Thus, to prevent further “surgical strike” by India against Pakistan and any serious conflict (war), China may now also co-operate with India in banning Pakistan sponsored JEM terrorist organization.
After the latest “surgical air strike”, India’s 10Y bond yield surged by almost 19 bps to 7.67%; but now ticked down to around 7.60%. The USDINR jumped almost +0.72% to the session high of 71.34, now trading around 71.05.
On Tuesday, the Indian market was dragged by banks & financials (higher bond yields, negative for their bond portfolio, especially for the PSU banks and DHFL downgrade); real estate, selected FMCG, energies (lower oil), infra and capital goods, while helped by media (ZEEL), automobiles (led by Tata Motors on US-China trade truce optimism-JLR-UK), pharma and some metal names. Nifty was helped by TCS, IOCL, ZEEL, TATA MOTORS, and Axis Bank, while dragged by HDFC, ICICI Bank, Infy, RIL and HDFC bank.
Overall, Nifty is almost flat for February (till date) as it was dragged to a low of 10586.35 by the concern of higher fiscal deficits amid political populism, RBI credibility and subdued Nifty earnings, while helped by increasing prospect of another NAMO (Modi) win (majority) in the forthcoming general election; Nifty made a high of 11117.60 on the budget day.
The biggest disadvantage for the Indian opposition parties is lack of sustainable unity and no credible PM candidate, acceptable by all the United oppositions across India. The WB CM Mamta Banerjee led “United India” is not ready to support INC’s Rahul Gandhi as an acceptable PM candidate, while Mamta is not acceptable outside WB as a possible PM candidate, despite she is the most popular CM in the country right now.
Although Modi is going to win this time also, it may be with much less number of seats in line with political color/permutations & combinations across various states in India in the absence of any major “NAMO” wave unlike in 2014 election. Thus, anything short of a 2/3rd majority by the BJP of its own may be negative for political stability and positive for some policy paralysis in the Parliament. India needs a major structural policy reform in the next 5-10 years for sustainable GDP growth in double-digit and subsequent improvement in employment and wage growth.
Technical View (Nifty, Bank Nifty, USDINR)
Technically, whatever may be the narrative Nifty Fut-I (NF) has to sustain over 10955 for a further rally to 11000*/11075-11155*/11205 and 11245/11315-11405/11495 in the near term (under bullish case scenario).
On the flip side, sustaining below 10935-10915, NF may fall to 10815*/10760-10745/10695* and 10640/10595*-10560/10520 in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I (BNF) has to sustain over 27200 for a further rally to 27400*/27600-27825/27925* and 28115/28275-28425*/28655 in the near term (under bullish case scenario).
On the flip side, sustaining below 27150, BNF may fall to 27000*/26850-276700*/26450 and 26250*/26000-25700/25400 in the near term (under bear case scenario).
Technically, USDINR (spot) has to sustain over 71.45 for a further rally to 71.90*/72.05-72.65/72.9073.35 and 73.35/73.75-74.00/74.50*in the near term (under bullish case scenario).
On the flip side, sustaining below 71.25, USDINR may fall to 70.85*/70.35-70.00*/69.50 and 69.15/68.90-68.15/67.15 in the near term (under bear case scenario).
India 50
NIFTY FUT MARCH 
Pivot: 11000 Support: 10890 10780 10715Resistance: 11075 11155 11205 Scenario 1: Strong above 11000 and sustaining above 11075/11155*-11205/11245, Nifty Fut(March) may further rally to 11315/11405-11495/11620 in the near term Scenario 2: Weak below 10980 and sustaining below 10890/10780-10715/10630, Nifty Fut (March) may further fall to 10570/10520-10425/10320 in the near term Comment: Short term range: 10570-11155
Pivot: 71.45 Support: 70.85 70.35 70 Resistance: 71.9 72.05 72.65 Scenario 1: Strong above 71.45 and sustaining above 71.90*/72.05-72.65/72.90, USDINR may further rally to 73.35/73.75-74.00/74.50*in the near term Scenario 2: Weak below 71.25 and sustaining below 70.85*/70.35-70.00*/69.50, USDINR may further fall to 69.15/68.90-68.15/67.15 in the near term Comment: Short term range: 70.00-72.05