Indian shares slipped into the red and the rupee weakened after Pakistan said it shot down two Indian jets on Wednesday, a day after Indian warplanes struck inside Pakistan. Islamabad said it had carried out air strikes in Indian-controlled Kashmir and shot down two Indian jets in its own airspace, capturing one of the pilots as the conflict with its nuclear-armed neighbour continued to escalate. Tensions have been elevated since a suicide car bombing by Pakistan-based militants in Kashmir killed at least 40 Indian paramilitary police on Feb. 14, but tensions mounted on Tuesday when India launched an air strike on what it said was a militant training base.

"There is a concern that things should not escalate into a bigger problem," said Siddhartha Khemka, head of retail research at Motilal Oswal Securities.

"Now if something more has happened, it needs to be seen what kind of impact it will have in the geopolitical scenario. The market will take cognisance and remain cautious." The broader NSE index was down 0.18 percent at 10,815.60 as of 0816 GMT, while the benchmark BSE index was 0.08 percent lower at 35,943.21. The NSE index had risen as much as 0.96 percent earlier in the day and then fallen as much as 0.78 percent, while the BSE index had gained up to 1.1 percent. The 10-year benchmark bond yield rose to 7.68 percent, the highest since Jan. 2, while the rupee weakened to 71.49 to the dollar from Tuesday's close of 71.08.

Copyright Reuters, 2019