The Pulwama attack has scared foreign investors away

• The recent militant attack in Pulwama and its subsequent fallout is not only hurting India’s small business owners, but it’s capital markets too.
  
• As a result of the attack, the Sensex fell for nine consecutive days - its worst streak in eight years.
  
• To make matters worse, foreign investors also pulled out ₹62 billion of funds from debt and equity markets in the three three days following the attack.

It seems that the recent militant attack in Pulwama, wherein 45 security personnel were killed, and its subsequent fallout is not only hurting India’s small business owners, but it’s capital markets too.

As a result of the attack, the Sensex fell for nine consecutive days - its worst streak in eight years. To make matters worse, foreign investors also pulled out of India’s debt and equity markets.

Around ₹62 billion of funds from foreign portfolio investors (FPI) left India’s markets in the three three days following the attack on February 14th, according to media reports. This eclipses the ₹53.6 billion worth of FPI outflows seen in the month of January.

More importantly, this completely undoes the inflows that followed in the wake of the Modi administration’s populist interim budget announcements. Around ₹56 billion worth of foreign investor funds entered the country between February 1st and February 14th.

Indo-Pak tensions have heightened in the aftermath of the attack. In addition to the deployment of troops on the border and in the Kashmir valley, India revoked “most favoured nation status” to Pakistan and imposed a 200% duty on imports from the country.

Meanwhile, Imran Khan, the Prime Minister of Pakistan, announced that the country would retaliate in kind if it was attacked.

Geopolitical stability is always an important factor whe foreign investors evaluate investment opportunities in emerging markets. If the current tensions persist, the outflows will likely continue. Not only will this hurt India’s currency, but it could provide a dampener on economic growth.

Amid the exodus of foreign investors, domestic institutional investors were left to keep the market afloat, pumping ₹43.5 billion into stock markets in the same three-day period. This prevented what could have been an even more drastic fall in the Sensex.

Furthermore, in alignment with global trends, gold prices in India got a boost as investors piled into the safe haven asset, driving prices 2% higher to ₹34,680 per ounce by February 19th.


SEE ALSO:

Indians traders lose $3.5 billion in business due to protests post Pulwama attack

Pakistan PM Imran Khan says the country will retaliate if India attacks