India's growing tensions with neighbor Pakistan may create short-term volatility in the stock market, but analysts said Friday the world's fastest-growing major economy was still a positive, long-term investment prospect.
On Thursday, the Nifty 50 closed down 1.76 percent at 8,591.25 and the Sensex fell 1.64 percent to 27,827.53 against a broadly positive trading backdrop in Asia. On Friday afternoon, both indexes traded near flat.
The Indian rupee fell from levels as high as 66.3175 against the dollar to as low as 66.9450 on Thursday following news that the Indian army conducted strikes against militants in Kashmir, which commentators said marked the biggest intraday fall of the currency since the Brexit vote.
"Risk sentiments soured amidst reports of Indian armed forces and neighboring Pakistan exchanging fire along the northern border," said Radhika Rao, an economist at Singapore's DBS Bank, in a note on Friday.
Investor sentiment was hurt Thursday after India announced its army conducted "surgical strikes" against terrorists along the Line of Control, which runs through the disputed territory of Kashmir. Pakistani military denied such strikes, calling them an "illusion" created by India, but said there had been cross border fire initiated and conducted by India.