India-Pakistan conflict may impact GDP but equities remain stable: JM Financial report draws on historical data

Indian equities are expected to remain stable, despite geopolitical tensions between India and Pakistan, a recent report by JM Financial said.This prediction was based on assessment of historical trends. “past data suggests that the Indian equity markets have not been negatively impacted significantly during such conflicts, but the Indian economy has been adversely affected,” JM Financial has said according to an ANI report.The report reviewed four major military conflicts involving India, the 1962 war with China, the Indo-Pak wars of 1965 and 1971, and the Kargil war of 1999. In each case, equity markets either saw a swift recovery or ended up registering only limited negative reactions, while the broader economy faced more substantial consequences.After the 1962 Indo-China war, India’s GDP shrank by 0.8 per cent.The economic damage was even more pronounced during the Indo-Pak war of 1965, when GDP growth tumbled down sharply to 2.6 per cent, down from 7.5 per cent in the previous year.In the 1971 Indo-Pak conflict growth slipped to 1.6 per cent from 5.2 per cent the year before.Interestingly, the Kargil war in 1999 deviated from this pattern. Rather than slowing down, India’s economy accelerated, with GDP growth rising to 8.9% from 6.2 per cent in 1998. The war that was fought between May 3, 1999 to July 26, 1999, saw Nifty jump 7% at the end of the third day of the war, while at the end the benchmark was 35.6% up.The report hence argued that the economic impact of conflict can vary significantly depending on both internal resilience and external factors.Even though India’s economic health could be dampened by military escalation, its impact would be severely less than the past because of its current robust economy.The firm said that while wars tend to strain national resources, at present, the economy is better positioned to absorb such shocks than it was at any other time during the past conflicts.This buffer is attributed to structural reforms, a more diversified industrial base and strong macroeconomic fundamentals that shield against any full blown economic shock.