The markets reacted positively to the early morning air strikes, as they were seen as a decisive foreign policy move, an SBI report said.

The stock market, after a gap- down opening, covered a large area and closed with a lower loss on Tuesday.

The SBI report studied the market behaviour post two similar incidents — the Kargil war and the Uri surgical strike after the Pathankot attack.

The Kargil war between India and Pakistan took place during May-July 1999. Initially, the leading indices showed a decline, but there was a strong recovery thereafter. The Sensex and the Nifty declined by 286 points and 79 points in the initial three trading days respectively, but recovered strongly thereafter and ended higher by 652 points and 191 points, respectively, when the conflict ended.

The overall impact of the Kargil war, thus, was actually market-positive. The economy grew at the same pace in 1999-2000 as the year before — a healthy 6.5 per cent.

Post the Uri surgical strike, India’s financial markets gained, with the Sensex climbing more than 100 points and the rupee appreciating. From a long-term perspective, Indian financial markets, including the stock, currency and even the bond market showed traction. For example, the stock markets jumped 3,456 points, while the rupee appreciated by 2.4 per cent against the US dollar.

“We thus believe that the impact of today’s (Tuesday) air strikes will have no material impact on the markets as in the case of the Kargil war and the Uri attack. There is one thing in common: these conflicts are more localised in nature. Also, now that India has clearly reaffirmed that its patience cannot be taken for granted, these strikes in fact act as a positive for the markets for the decisiveness in India’s foreign policy,” the report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser of SBI, said.

The report also took cognizance of the latest tweet by the US President Donald Trump. This tweet on oil will have positive impact on oil prices as indicated by the past data trends. On September 18, 2018, when Trump had tweeted that oil prices must go down, oil was hovering at $80/bbl, and in less than two months, it declined to $70/bbl. The US President again tweeted in November 2018 and oil prices declined to $60/bbl. Now, it is hovering around $65 a barrel and any reduction will have a positive impact on India.

All eyes are now on India’s growth number which is scheduled to be announced on Friday. “We now await GDP numbers for the third quarter. We are firmly of the opinion that with inflation numbers surprising on the downside, RBI will cut rates in April. Clearly, for India, historical evidence shows that geopolitical risks do not translate into political risks,” the report said.

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