India's strike on terror launch pads last night across the Line of Control (LoC) is unlikely to have any major impact on the financial markets thanks to the strong macro-economic data, says a report by SBI.
"While the initial response of the financial market has been negative, we believe such attacks are unlikely to have any material impact on the markets," SBI said in its report 'Ecowrap'.
Stock market benchmark Sensex came under severe selling pressure and plunged 465.28 points or 1.64 per cent to 27,827.53 at close today. Domestic currency depreciated over 40 paise to close at 66.84.
The report said Indian economy is currently on a sound footing with favourable macro numbers.
During the Kargil war from May to July 1999, leading indices of domestic stock markets had showed initial decline but recovered thereafter.
Sensex and Nifty had declined by 286 and 79 points, respectively, in three trading initial days, but recovered thereafter and had ended higher by 652 points and 191 points when the Kargil conflict ended.
The rupee depreciated by 1.2 per cent to 43.3 on July 26, 1999 from 42.8 on May 26, 1999, against the dollar, while the 10 year yield had shown a minor change of 2 basis points.
India had a fiscal deficit of close to 6 per cent in financial year 1999-2000 and the rupee stayed at nearly the same level during the rest of the financial year, indicating that the value of the rupee is more determined by external factors.
"The overall impact of the Kargil war was actually positive. The economy grew at the same pace in financial year 1999-2000 as the year before -- a healthy 6.5 per cent," the report said.
The report believes the surgical strikes will have no impact on the markets as in the case of Kargil war, because these conflicts are localised in nature.
"Also, now that India has clearly reaffirmed that its patience cannot be taken as granted, these will in fact act as a positive for the markets for the decisiveness in the county's foreign policy," the report said.