Indian markets fall on tensions with Pakistan

Mumbai: Indian shares, bonds and the rupee fell sharply on Thursday after the India claimed it had conducted ‘surgical strikes’ inside Pakistan-ruled Kashmir.

Indian shares posted their biggest declines since the Brexit vote in June.The broader NSE index ended down 1.76 percent to 8,591.25, posting its biggest daily percentage fall since June 24, the day after the Brexit vote.

Early in the day, the index dropped as much as 2.1 percent to its lowest intraday level since Aug. 29.The benchmark BSE index closed down 1.64 percent at 27,827.53.

"Markets will closely watch the next few days for further developments. Any such conflict creates uncertainty in the investment climate," said Shubhada Rao, chief economist at YES Bank in Mumbai."But it is premature to talk about serious war."

The announcement by Indian army´s head of operations sent India´s share market Volatility Index (VIX), often seen as a "fear gauge", up as much as 37.6 percent. Analysts in both countries, however, expect tensions would eventually ease given the stakes involved even if India has departed from its characteristic stance of strategic restraint.

Indian central bank is set to hold a policy review. Investors had already been growing cautious ahead of the Reserve Bank of India´s policy review on Tuesday. Benchmark 10-year bond yields were up 8 basis points at 7.00 percent from its previous close while the rupee weakened to 66.80/81 from its close of 66.46 on Wednesday.