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Event Update: India’s decisive action against terror

Event: India’s Surgical Strikes against Terror Camps in POK

Setting aside its normal restraint and the respect for the line of control (Official Border) between India and Pakistan, the Indian army conducted surgical strikes against terrorist camps operating inside Pakistan occupied Kashmir (POK) in the early hours of Thursday 29th September 2016, establishing its right to retaliate against terror attacks. The strike destroyed terror infrastructure and killed terrorists.

Surgical Strikes Essential to deal with Terror

The surgical strikes were conducted by the Indian army based on specific information that some terrorist teams had positioned themselves at launch pads in Pakistan occupied Kashmir with an aim to carry out infiltration and terrorist strikes. The strikes were done as a counter to the 18th September 2016 terrorist attack on the Indian army garrison in Uri (a town in Jammu & Kashmir) which caused the death of 18 Indian soldiers. India had shown considerable restraint in earlier terror strikes against it, expecting that Pakistan would take action against terror outfits operating from its territory, taking cognizance of India’s diplomatic efforts.

India’s Diplomacy on Terror handled well

On the diplomatic front, India ring-fenced its army action by keeping key countries such as the US in the loop. Diplomats from 25 countries including the US, the UK, France, Russia and China were briefed by India on the surgical strikes. Earlier (post the Uri terror attack) India had launched a diplomatic offensive against the State sponsored terrorism by Pakistan at the United Nations General Assembly. India had said that in Pakistan billions of dollars of international aid gets diverted to training, financing and supporting terrorist groups and it is now a host to the Ivy League of terrorism (global epicentre of terrorism) attracting aspirants and apprentices from all over the world. The fact reckoned by key UN members as many terror trails lead to Pakistan, including the September 11 attack in the US. And many UN designated terrorist entities and their leaders operate from Pakistan.

Domestically too, the Modi led NDA government took in confidence all the political parties and the strikes were supported by all political parties in the country.

No Further Military Action Expected

India has made it clear that this was the only military action for the moment and the action was against terrorists and not against the Sovereign State of Pakistan. The same was communicated by the Director General of India’s Military Operations to his Pakistani counterpart stating that “India had not attacked its army, but had targeted non state actors”.  The response from Pakistan has been one of denial, denying that any such surgical strike had taken place and termed the operation as normal cross firing at the line of control, suggesting that Pakistan is not contemplating any retaliatory action. Nevertheless, Pakistan Prime Minister Nawaz Sharif held a cabinet meeting to take stock of the situation and issued a statement that Pakistan is ready to counter any external threat.

Our View:

The military action sends a strong message to terror outfits operating out of POK that India will henceforth take decisive action against terror and move beyond the normal diplomatic solutions, which it has been seeking till now. The diplomacy along with the military action has ensured that the world views India’s actions (not a single country except Pakistan condemned the strikes) as necessary to control the global threat of terrorism. Pakistan’s reaction (brushed off as an existential phenomenon) too suggests that it does not wish to escalate the matter any further. While the relationship between India and Pakistan will remain fluid, any further flare-up in the near term looks unlikely, unless there is further provocation from terror groups operating from POK.

Market Impact:

As a knee-jerk reaction to the events on the border, Indian equity markets declined and the Indian Rupee weakened. The benchmark Nifty 50 index declined 1.76 per cent to 8,591, whereas the Nifty Midcap 100 index declined by 3.8%. The rupee weakened 0.6 per cent to 66.85 per dollar. Both the Indian rupee and the equity markets had their worst day since June 24, when Britons voted to exit from the European Union. With low possibility of further escalation (reduced event risk) in tension between India and Pakistan, markets are expected to stabilize and once again focus on earnings growth. Risks to markets could emanate from global events. India will continue to remain a destination for global flows, investors seating on the fence climbing the wall of worry though may continue to remain seated on the fence.

Table 1: Limited Impact of Kargil War (Last war between India and Pakistan) on Markets

Date Event Nifty 50 Return for the period
30th April 99 978.20
3rd May 99 Pakistani Intrusion in Kargill Noticed 970.75 -0.76%
17th May 99 Indian Army Mobilizes troops from Kashmir Valley to Kargil 1151.90 18.66%
26th May 99 IAF Launches air strikes against the intruders 1135.50 -1.42%
1st June 99 Pakistan steps up attack 1123.80 -1.03%
15th June 99 US President Bill  Clinton asks Pakistani Prime Minister Nawaz Sharif to Pull out from Kargil 1120.50 -0.29%
29th June 99 Indian Army Captures two vital posts 1191.30 6.32%
5th July 99 Pakistani PM Nawaz Sharif announces Pakistan army’s withdrawal following his meeting with Clinton 1230.25 3.27%
26th July 99 Kargil conflict officially comes to an end 1326.15 7.80%

Source: India Avenue