Mumbai, Feb 26 : Fears of diplomatic or military retaliation from Pakistan might keep equity investors subdued over the next few days, market observers said on Tuesday.
But low crude oil prices and attractive valuations will arrest any sharp downward spiral. It might even give a boost to gold and other asset classes.
Analysts' assessment comes amid heightened geo-political tensions in the sub-continent after India struck terrorist training camps in Pakistan on Tuesday, and Islamabad responded with multiple ceasefire violations along the Line of Control (LoC) in Jammu and Kashmir.
Consequently, fears of escalation pulled key domestic indices into the red later in the day.
In their outlook, analysts said key equity indices would remain in a tight-range with a negative bias over the next one-two days, as investors evaluate risks of any further escalation in tensions with Pakistan.
"Traders and investors may show some caution for another 1-2 days and wait for any retaliation or escalation," said Deepak Jasani, Head of Retail Research for HDFC Securities.
"In case they do not witness any such thing in this period, they would go back to the normal times," Jasani said.
"Massive swing (especially downward) can be seen only in case of retaliation and counter-retaliation, causing escalation in hostilities. In such an event, investors (especially foreign) would look at reducing their exposure to India and stay away till things settle down."
Analysts said macro data like the fiscal deficit figures, released on Tuesday, and the upcoming data on select industrial output and the gross domestic product (GDP) growth numbers could induce caution.
Even the upcoming elections are a 'big factor' for uncertainty, market observers said.
"Over the next 2-3 days, investors are likely to look beyond the current situation and act accordingly to developments like the general elections and slowdown in domestic and global economy," said Vinod Nair, Geojit Financial Services' Head of Research.
"Market is likely to be range-bound with a negative bias in the next 2-3 days given lack of positive triggers in the domestic and global markets," Nair said.
Besides, derivative expiry might also hamper any market upmove. "Today's events could have a sentimental impact on the markets, especially because we are in a F&O expiry week," said Vinay Khattar, Head of Edelweiss Investment Research.
"Investors should be more concerned about economic data, which has been soft lately, and the tepid pace of earnings growth. These factors warrant more attention over the medium to long term," Khattar said.
Mustafa Nadeem, CEO, Epic Research, said: "From here, there may be some consolidation in the Nifty between 10,900 and 10,750 for coming sessions as the rise in volatility has indicated traders rushing for puts and hedging their positions."
"There may be further escalation on the geopolitical front and we suggest traders keep portfolios intact with a tight stop loss and hedging using options," he said.
On the global front, the drop in crude oil after US President Donald Trump's comment has capped its upside at $57, which is favourable for India as it is one of the biggest importers of crude, Nadeem said.