Mumbai: The Pulwama attack on February 14 continues to have multiple repercussions across political, economic and social dimensions. The latest one being the massive outflow of foreign funds following the same.
Foreign Institutional Investors (FIIs) -- which profoundly influence investor sentiments at the bourses given its substantial sum -- pulled out over Rs 3,000 crore in just three days after the attack.
But in the comparable period, the Domestic Institutional Investors (DIIs) maintained their support pumping Rs 4,353.84 crore into the market.
"Tensions between India and Pakistan always makes the market volatile. FIIs are net sellers post this development because they wanted to protect their portfolio," said Debabrata Bhattacharjee, Head of Research, CapitalAim.
DIIs are awaited and looking at this as an opportunity to invest in a quality stock with fair valuation, he added.
Though the size of India and Pakistan trade is limited, markets tend to get affected more by investor sentiment than actual numbers. Since the attack, India has taken a tough stance and outright combat may still be on the cards.
Analysts have said that traders are closely looking at India's stance in response to the attack, which has been nothing less than aggressive. Since the attack, India has revoked the Most Favoured Nation (MFN) status given to Pakistan and imposed a 200 per cent import duty on its goods.
"While political relations between the two countries have most certainly influenced trade, it is important to note that no measures having a direct negative impact on trade were adopted by the two countries unlike instances in the past when political skirmishes led to adopting measures which restricted trade," a working paper by ICRIER said last year.
The reversal of trend was visible as FIIs got a major boost earlier in February. Along with the overall equity market, the FIIs reacted positively to the Interim Budget and the rate cut by the Reserve Bank of India.
However, Deepak Jasani of HDFC Securities anticipates a stable foreign inflow in the upcoming trade sessions. A strong reason for this, Jasani added was the "favourable interest rate scenario".
Besides, Bhattacharjee said that if FIIs are on selling mode then market will correct from current levels because they have a strong presence in Indian Equity Market.
A notable exception came on Friday, with the Rs 6,122.41 crore inflow, the highest this month but experts said it would not mean a reversal in trend as it came amid the Kotak Bulk Deal.