The Indian markets have been relatively mature amidst the growing geo-political tension with Pakistan in the aftermath of Operation Sindoor in response to the terror attacks in Pahalgam where 26 civilians were killed. Listing out its India strategy at the moment. Key international brokerage house Jefferies says, while an escalation in tension cannot be ruled out, any correction is likely to be shortlived.
The brokerage house is negative on tourism related plays in the current context, “An escalation cannot be ruled out, though. Any potential escalation would be negative for tourism and high beta stocks in particular. However, any consequent market correction would be shortlived, in our view.”
The Top bets for Jefferies now
According to the brokerage house, they have cut weight of the tourism and property sector in their model portfolio. They are Underweight on industrials as well. If the conflict were to escalate, “worries might rise regarding important industrial/infra facilities located close to the India Pakistan border,” added Jefferies. Based on precedents, they believe that any “potential market correction on the back of escalation would be short-lived.”
They are ‘Overweight’ on banks, NBFCs, autos, and telecom stocks at the moment.
Cannot rule out escalation completely
Jefferies is basing its assumption on the premise that a potential escalation of tension cannot be ruled out completely. The Government conducting drills across India to prepare the civilians for any military action by Pakistan is a key factor to consider, according to them. Pakistan’s cross-border firing — in violation of a ceasefire agreement — has led to civilian deaths in India.
However, the brokerage house noted that in the past few instances, including the surgical strikes in Uri and Balakot, there were measured responses from the authorities, and based on this precedent, they expect that the overall correction may not be significantly large.