5 key events that will drive the markets from here on

After a knee-jerk reaction to the surgical strike by India across the Line of Control (LoC) that saw the S&P BSE Sensex tumble over 500 points in intra-day deals on Thursday, the markets remained on the edge on Friday. The S&P BSE Sensex and the Nifty 50 indices lost ground after opening on a flat note.

Analysts expect markets to remain choppy as investors adopt a wait-and-watch mode over the next few sessions till there is more clarity on the geopolitical situation.

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Besides the second quarter results of India Inc, here are 5 key factors that will determine the market direction over the next couple of months.

Clarity on the geopolitical situation...

RBI Monetary Policy review...

US Presidential Election...

Rate hike by the US Fed...

Oil Prices...

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Behind Pakistan's military confidence: China's growing shadow

Until five years ago, the USA and China shared an almost equal proportion of Pakistan’s arms imports: 39% and 38% respectively. Today, China supplies 63% of Pakistan’s armaments, with the USA dropping to 19% and second place, an India Spend analysis reveals, as Pakistan mulls a response to India’s strike on terror camps across the border.

China’s rise to becoming the world’s third-largest arms exporter was to a large degree helped by heightened demand from Pakistan, which now buys 35% of these exports and is Beijing’s biggest buyer (Bangladesh follows at 20%), according to this February 2016 report from the Stockholm International Peace Research Institute (SIPRI).

The military supplies are bolstered by unwavering support at a time of heightened tension with India and faltering ties with the US (there was a 73% drop in US security aid over four years to 2015,The Wire reported in August 2016; the US also cancelled the subsidised sale of eight F-16 fighter jets).

 

Source: Stockholm International Peace Research Institute Link 1 & Link 2

Last month, Pakistan’s ministry of defence production confirmed a contract with China for the purchase of eight conventional diesel-electric submarines, which will cost between $4 billion to $5 billion (Rs. 25,600 crore to Rs. 33,200 crore), China’s biggest defence export deal.

From 2011 to 2015, China sold $8.4 billion worth of arms, overtaking long-established arms exporters France ($8 billion) and Germany ($6.7 billion), although it still lags the leaders: the US ($47 billion) and Russia ($36.2 billion).

Stockholm International Peace Research Institute, Figures in million US$ at constant 1990 prices

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Uri attack: Military reviews 'escalation ladder'

The strike by jihadi militants on Sunday on an army camp near Uri, in which 18 soldiers were killed and 29 injured, has inflamed tensions along the Line of Control (LoC). On Tuesday, the army shot down eight Pakistani militants after intercepting a 15-strong group that was discovered infiltrating from Pakistan Occupied Kashmir (POK).

With public opinion and the media aroused, and with Prime Minister Narendra Modi vowing to punish those responsible; and the army's top operations officer declaring the military would retaliate at a time and place of its choosing, both sides of the LoC are bracing for what might come.

New Delhi has pinned the attack on the Lashkar-e-Taiba, a militia controlled by the Inter-Services Intelligence (ISI), a wing of the Pakistani Army. Home Minister Rajnath Singh has declared Pakistan a "terrorist state" and the Indian Army, already grappling with public turmoil in the Kashmir Valley, is evaluating options to extract revenge for Uri.

Pakistan presents an easy target for an Indian diplomatic offensive against its terror-friendly ways, in western capitals and multilateral forums. However, a calibrated military riposte would need more careful consideration.

Business Standard has discussed India's options with senior officers close to the planning process. All of them agree the army can easily initiate retaliation. But, thereafter, there would be two sides in the game. Escalation would be both inevitable and unpredictable.

India's first option is to retaliate through fires (the effect of weapons) without Indian forces physically crossing the LoC. This would involve "fire assaults" on targets across the border, using artillery, missiles, and multi-barrel rocket launchers and Brahmos cruise missiles for deeper-lying targets. A fire assault involves suddenly opening up intense fire with massed weapons on an unsuspecting and carefully chosen target, catching people in the read full story

17 soldiers killed, 23 injured in cross-LoC strike on Uri camp

In a jarring challenge to the army in Jammu & Kashmir(J&K), armed militants attacked a camp near the border town of Uri on Sunday morning, killing 17 soldiers and wounding another 23. This is the heaviest blow the army has suffered in a single attack since armed insurgency broke out in J&K in 1990.

Lt Gen Ranbir Singh, the army’s Director General of Military Operations (DGMO), described the events in a media statement. He said a group of Pakistani terrorists attacked the camp at 5.30 am and four were killed by 8.30 am. It remains unclear whether there were more. Explaining the heavy army casualties, the DGMO said: “The terrorists fired incendiary ammunition, along with automatic fire of small arms that led to army tents [and] temporary shelters catching fire… There have been a total of 17 army fatal casualties. Of these, 13-14 casualties have been due to these tents/shelters having caught fire.”

The administrative echelons of two infantry battalions — 10 DOGRA and 6 BIHAR — were in the camp. Their combat echelons had deployed in forward posts along the line of control (LoC), leaving the camp lightly guarded.

Even so, the attack raises serious questions of operational culpability. An infantry battalion’s administrative echelons should also consist of armed and trained soldiers, who should not have been caught napping by a read full story

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