Rising border tension between India and Pakistan may cook further losses for stocks and bonds

The Indian stock index and bonds slumped Thursday after the Director General of military operations of the Indian Army, Lt. General Ranbir Singh said that they have attacked terrorist camps in Pakistan, which were preparing to infiltrate from Pakistan-occupied Kashmir (PoK).

Following this news, USD/INR was up 0.3 percent to 66.6550, the BSE Sensex plunged nearly 1.8 percent and Nifty-50 futures declined 1.54 percent. Also, the benchmark 10-year bond yield, which moves inversely to its price, increased more than 1 basis point to 6.935 percent.

India said on Thursday it had conducted "surgical strikes" on suspected militants preparing to infiltrate from Pakistan-ruled Kashmir, making its first direct military response to an attack on an army base it blames on Pakistan. The cross-border action inflicted significant casualties, the Indian Army's head of operations told in a conference in New Delhi, Reuters reported.

As always, Pakistan denied about any surgical strike, carried out by India across de facto border in Kashmir.

We believe that any strikes or tension across the border between two nuclear powered countries will hurt investor sentiments. Also, given the current robust economic growth of India, we advice to go long on stocks linked to the economy as tensions should not alter the economic outlook.