Foreign investors, who had been on a 16-day buying streak in Indian shares until the clashes flared up Friday, may resume flows as subsides. Meanwhile, in Pakistan, the International Monetary Fund’s approval of $1 billion in immediate disbursement along with a new $1.4 billion plan for climate resilience will be a booster for its fragile finances.
“Short covering and deployment of idle funds will lead to a spike in broad on Monday,” said Mumbai-based Abhay Agarwal, chief investment officer at Piper Serica Advisors Pvt. “The focus should shift back to fundamentals.”
Investors had been nervous. India’s NSE Nifty 50 slid more than 1% on Friday — its steepest fall in over a month — while the rupee was one of Asia’s worst performers last week. Bond yields crept higher as risk premiums widened, although purchases by the Reserve of India helped limit the declines. Pakistan’s key stock index is down 9% since the April 22 attack in Kashmir, which prompted India to retaliate.
India’s bonds and foreign currency markets are closed on Monday for a public holiday.
With the immediate geopolitical risks easing, investors are expected to pivot to positive signals in India, including hopes for an early US trade deal, ample liquidity, and expected rate cuts by the RBI. In Pakistan, traders anticipate a relief rally, as border tensions overshadowed a surprise interest-rate cut by the State Bank of Pakistan and prospects for additional IMF funding.