Source: Outlook Business
In the wake of India conducting precision air attacks on terror camps in Pakistan and Pakistan-occupied Kashmir under Operation Sindoor, the economy and financial markets began to react with immediate consequences. The operation has been referred to as “measured” by Indian authorities, but it seems currency trading and investor sentiment are already experiencing the fallout.
Rupee Faces Downward Pressure
India’s rupee opened Wednesday at 84.65 against the U.S. dollar and weakened further to 84.66, dropping 31 paise. The reasons behind this drop were cited by the forex market participants as largely due to geopolitical uncertainty and fears of military escalation.
“With geopolitical concerns and the US Fed policy meeting ahead, volatility in the currency is likely to remain elevated. The rupee is expected to move in a range of 84.00 to 84.75 in the coming sessions,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.
Other than the onging India-Pakistan conflict, central bank interventions and a soft Chinese yuan are also contributing factor behind the Rupee movement.
Markets React to Geopolitical Risks
Markets opened lower following the news of the attacks. On Tuesday, before the operation, the rupee had already closed 5 paise weaker at 84.35 against the dollar, reflecting enhanced risk aversion. With the uncertainty, the risk appetite of investors has further declined, while few defense-, logistics-, and export-related sectors have started exhibiting volatility in the initial minutes.
“Fueled by geopolitical tensions and weakening domestic equities, the dollar inched up against the rupee. Adding to the rupee’s woes were central bank interventions and a soft Chinese yuan. Consequently, the USDINR spot rate is projected to consolidate between 84.25 and 84.90 in the near term,” said Dilip Parmar, Senior Research Analyst, HDFC Securities.
Disruption to Trade and Logistics
Even though bilateral trade between India and Pakistan is minimal, closure of airspace and suspension of cross-border trade routes by Pakistan is creating disruptions in logistics corridors. These exporters, depending on overland routes for entry to Afghanistan, Central Asia, and parts of the Middle East are now being subjected to delays.
Further though, a rise in border security and diverted trade flows may increase the freight costs and insurance premiums, hindering textile, agriculture, and pharma exports in particular.
Conclusion
The India-Pakistan conflict, while military in nature, casts a long shadow over the business landscape. With the rupee weakening, trade corridors disrupted, and market volatility rising, companies have been urged to assess operational risks and incorporate these into their supply chains and currency exposures.
Disclaimer: This article is meant only as a source of information. The opinions expressed belong to the respective market analysts and are not to be considered a financial ad-vice. A business or an investor may want to consult a certified professional before entering into strategic decisions.
