Mumbai: Indian small- and mid-cap stocks rebounded even as the main indexes extended losses after falling the most in three months following the nation’s attack on terrorists in Pakistan.

The S&P BSE MidCap Index jumped the most in a week as some investors bet the gauge’s 3.6% tumble on Thursday was overdone. The S&P BSE Sensex and the NSE 50 Nifty Index lost at least 0.2% after changing direction at least 10 times. The Sensex lost 1.6%, the most since June, Thursday, while the midcap gauge tumbled 3.6%, the most since August 2015.

“The mood is still cautious and the only hope is that the tensions don’t escalate," said Aneesh Srivastava, who manages $700 million as chief investment officer at IDBI Federal Life Insurance Co. in Mumbai. “The economic consequences for us could be far greater if Pakistan retaliates."

Indian equities also tracked declines in Asian markets, which were weighed by mounting concerns about Deutsche Bank AG’s finances. Shares of Deutsche Bank in the US slumped to a record low, dragging financial shares lower globally, after Bloomberg News reported that some hedge funds were moving to reduce their financial exposure to the bank.

The conflict in Pakistan and increased global volatility have introduced a sobering note for the Indian markets closing out a blockbuster quarter. Stocks are set for a second quarterly advance and the rupee is poised to end a five-quarter losing streak. Benchmark 10-year bond yields have plunged 63 basis points, the most since the three months ended December 2014.

Local assets have rallied as foreigners bought the most stocks and bonds in the September quarter since the similar period ended March 2015, as the government took measures to bolster economic growth. Speculation that slowing inflation will allow new Reserve Bank of India (RBI) governor Urjit Patel to cut interest rates at next week’s monetary policy review have added to the optimism. IDBI Federal expects borrowing costs to fall 25 basis points by the year-end, Srivastava said.

Global investors bought 3,410 crore of shares and their domestic counterparts were net buyers of 1,630 crore of equities on Thursday, provisional data from the nation’s exchanges show. State-run banks bought a record amount of sovereign bonds on Thursday, taking advantage of the biggest yield jump in 13 months after the country’s army said it attacked terrorist camps in Pakistan.

Maruti Suzuki India Ltd, the nation’s largest car maker, is the top-performing Sensex stock in the September quarter with a 30% rally. Bharti Airtel Ltd. and Wipro Ltd. were the biggest decliners. Bloomberg

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