India-Pakistan conflict pushes rupee to worst day in over two years

We expect the rupee to trade with a negative bias due to the strong dollar and escalating geopolitical tensions between India and Pakistan. Any further escalation could put additional pressure on the rupee. However, Foreign Institutional Investor (FII) inflows may provide support at lower levels.”

Commenting on the situation, Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, stated

International investors undoubtedly evaluate geopolitical risk into their assessment of India, contributing to the rupee’s underperformance,

said Samsara Wang, Asian sovereign analyst in New York-headquartered PineBridge Investments' global emerging markets fixed income team

This is a knee-jerk reaction from the markets just as we had expected due to escalation of border tensions,

said Sandeep Bagla, chief executive officer at Trust Mutual Fund

Incidents over the past decade have de-escalated with minimal impact on financial markets; this is our base case,

Jefferies said in a Thursday note, referring to the India-Pakistan tensions

The flows reflect a view that the situation, while tense, is unlikely to spiral into a broader conflict,

the trader said

There will be policy trade-offs if both unemployment and inflation rise, putting the Fed in a difficult predicament,

MUFG Bank said in a note

If Pakistan does follows through and hits India, the rupee will come under renewed pressure,

he said

While short-term fluctuations are expected, India's market resilience is evident. Investors should consider sectors aligned with government priorities, particularly defence and national security, which are likely to offer opportunities in the months ahead,

said Vikram Kasat, head - advisory at PL Capital

Risk appetite in part will have been curtailed following India's decision to attack Pakistan close to the border with Kashmir ... Pakistan has also retaliated, leaving the risk of conflict elevated,

MUFG Bank said in a note

Justice is served. Jai Hind!”

In the early hours of Wednesday, the Indian Army confirmed the military operation and said in a post on X

The PKR has shown resilience against USD in recent months,

said Naveed Ali, a chartered accountant working with a UAE-based bank

India has demonstrated considerable restraint in selection of targets and method of execution,

the country's defence ministry said in a statement

The relative calm is definitely a surprise. It seems the market isn't factoring in a major intensification of tensions at this point,

said Kunal Kurani, assistant vice president at Mecklai Financial

We expect there could be some selling by FII in the equity markets though that could be subdued as they would want to wait for further news of escalation to filter down.”

He further noted the potential for equity market outflows, saying

There could be some dollar buying by speculators and panicky importers but we think the Reserve Bank of India (RBI) will be present to stop any major slide of the rupee.”

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said

You can be sure the RBI (Reserve Bank of India) will intervene if there's any sign of disorderly moves,

said a trader at a private bank

With the situation unfolding, all focus will be on the news flow,

he said

Market volatility was further aggravated by escalating geopolitical tensions between India and Pakistan, coupled with uncertainty surrounding the US Federal Reserve’s upcoming interest rate decision,

said Siddhartha Khemka, Head – Research, Wealth Management at Motilal Oswal Financial Services Ltd