Will the Market Recover from the War Panic Anytime Soon?

The news of surgical strike on the LoC by the Indian army pulled down the Indian markets drastically. NSE’s benchmark index Nifty fell by almost 200 points from a high of 8800 to a low of 8558 with the bat of an eyelid. This surprise also led to a fall of 700 points in the Bank Nifty. The biggest question in everybody’s mind is will this panic last or will it subside!

The Fear Index

The fear index, popularly known as VIX, hit a high of 19.12 yesterday once the news of the surgical strike broke out. This is a level that has not been observed in the last two months.

What History has Taught Us!

The question is what will be Pakistan’s response to this situation of crisis. If history is any guide, let us take two instances- a) Kargil War and b) the Gulf war of 1980. In the Kargil war, the market was pretty resilient owing to the fact that the Indian army was successful in cleaning the peaks occupied by Pakistan. The markets went up as soon as it realized that there won’t be a full scale war and any and every operation that the armies of both the countries were carrying out was localized. The same was the case of the Gulf war of 1980. As soon as the news of the war broke out, crude oil price surged up to $80 a barrel but soon came down to the normal levels.

This indicates that the markets as soon as it knows that the escalation will not lead to a war the panic will subside.

Same is the current scenario where Pakistan is in denial mode about the surgical strike by the Indian forces which is a positive. With passage of time the situation will calm down and the panic in the market will settle down as well. The VIX index which is at 17 currently is expected to come down to the level of 15.

Nifty Level

The level to watch out for Nifty share price is 8550 on the spot and 19000 on the spot for Bank Nifty share price which is the important support levels. If the market sustains above these levels in the coming days then the cause of panic will not sustain. However, if these levels are breached and the market remains below, then that could be a dangerous indication for the traders. What history has taught us is that market knows the best and it has never been wrong.

So, let the market be the judge and the levels be our best friend. Time will tell us who will win the battle of nerves, the bull or the bear.

Source :  https://www.dynamiclevels.com/en/blog/will-the-market-recover-from-the-war-panic-anytime-soon