Tamal Bandyopadhyay & B G Shirsat: No blood on Dalal Street

The country's stock markets have a history of shrugging off terror attacks.

The blood stains from Tuesday's terror attacks on the railway tracks and the first-class compartments of the Borivili and Virar-bound local trains did not spill over to Dalal Street. Indeed, the BSE Sensex, a barometer of investors' confidence in the country, shot up by 316 points or around 3 per cent, a day after seven serial bomb blasts in Mumbai's lifeline killed over 183 commuters and injured 714.

It was not the terror attacks, but the better-than-expected results of software major Infosys Technology that captured the market's attention today. Many fund managers, brokers and corporate chiefs are of the view that had Infosys' results not been announced, the sensex would not have gone up. U R Bhat, managing director of Dalton Capital Advisors India, an investment advisory firm, goes a step further and says, "Markets do not lose confidence as terrorism has become part of life across the globe. Such acts do not incapacitate the corporate world; they do not attack the roots of corporate profitability. To that extent, the markets are insulated from terrorist activities."

Terrorists attacks, or even wars, have never kept the markets down for too long, and within a month of any major event that was expected to impact the market negatively, the sensex has bounced back, even moved on to new heights. After 9/11, the sensex plunged to 2600 in eight trading sessions on September 21, 2001 but rose to 2943 on October 11 since, by that time, all panic sellers had exhausted themselves and the market was looking for positive signals to leap forward.

At the time of the Kargil war in May 1999, the sensex lost heavily to go down to 3373 on May 28, from 4060 on May 25, but by the first week of June it was back over 4000, and rose further to touch 5000 in October 1999.

Six months after the 1993 bomb blasts in Mumbai, the sensex recovered 59 per cent from 2036 on April 26, to 3233 on November 26. Around the time of the Asian crisis, the sensex gained from 3700 in May 1997, to 4550 by early August.

Such behaviour is not typical of Indian markets alone. Japan's Nikkei fell below 10000 to a 17-year low of 9382 the day after 9/11, but then recovered over 10 per cent to close at 10347 a month later. Similarly, the Hang Seng was down to a three-year low of 8894 on September 12, but pulled back over 18 per cent to close at 10522 in the second week of October. During the time, London's FTSE 100 recovered 24 per cent, from a low of 4219 to 5233.

Between January 1990 and January 1991, the Dow dropped from 2880 to 2440, but once ground attacks began in the Persian Gulf, it bounced back to 2880 in February 1991. The global markets repeated the same pattern in March 2003 when the US launched the "Operation Iraqi Freedom".

An Asian Wall Street Journal study even suggests that when violence mounts, it's probably time to buy. That was the case in early 1991, when the US-led coalition began its assault on the Iraqi forces occupying Kuwait. Asian markets had lost in the six months following Iraq's invasion of the oil-rich kingdom but as soon as the US forces launched the offensive, they staged a rally that lasted until 1997, when the currency crises hit Asia. An identical pattern was seen in 1989, when Chinese troops crushed the pro-democracy protesters in Tiananmen Square in Beijing. Hong Kong's Hang Seng index plunged 37 per cent between mid-May when martial law was declared and June 4, when the military opened fire on demonstrators. But from June 6, after the protests were broken, the market staged a rebound and the northward movement continued till Iraq invaded Kuwait.

It takes more than a terror attack to derail an economy, and the markets understand that. Not just here, but the world over.