To summarize my expectation from
the escalating geo political tensions between India and Pakistan, I would quote
from an article in the Washington post published yesterday.
“If Modi does authorize military strikes, what will Pakistan do?
Pakistani Prime Minister Imran Khan has made promises of his own.
On Tuesday, he emphasized,
“If you think that if you can carry out any kind of attack on Pakistan,
Pakistan will not just think about retaliating, we will retaliate.”
You can read the entire article
(link below) which also cites the fact that how leaders commit themselves into
actions like retaliation /war basis their speeches and posturing; very similar
to how Modi’s posturing made it clear that he would definitely take action
against Pakistan for the recent terrorist attack.
Given the above line of thought I
would expect the geo political tensions to escalate further but chances of a
full scale war remain remote. In the past any sign of weakness or softness from
an elected political leader towards India has resulted in a military coup in
Pakistan (1977 Zia ul Haq executed Bhutto after the latter signed the Shimla
agreement in 1972 and 1999 after the retreat in the Kargil war Musharaf toppled
the democratic government of Nawaz Sharif). Therefore the past makes it
unlikely for us to expect that Pakistan would not react.
In the medium term the actions
from India increases Modi’s political capital on the back of a wave of
Nationalism and boosts his chances to come back to power in the upcoming May
elections. Therefore any signs of de-escalation would indicate the beginning of
a rally in INR and Indian equities, but I would think we are still some time
away from this.
Price action indicates that USDINR
was sold aggressively by nationalized banks since morning. Large moves in
USDINR remain unlikely and the broad range of 71-71.50 should prevail.
Overnight longs would make sense as offshore market can be expected to buy the
pair on the back of the concerns. For the day, CMP 71.05, Range 70.95-71.25.
Regards
Saket Agarwalla
No comments:
Post a Comment