Crisis in the neighbourhood

SMARTSHARE

Benazir Bhutto's assassination is a grim reminder of the threats that leaders of the subcontinent face. Musharraf has had his share of attempts on his life. In India, the residual Gandhi family, Advani, and now Modi, live under threat.

In this column, dated August 25, we had counted an unstable Pakistan as a possible risk to our markets. The assassination has brought back those fears.

The implosion of Pakistan could have serious repercussions for India. India's stock in the world markets has gone up largely because of the relatively stable relationship we have with our western neighbour. It is not clear as to how events in Pakistan will unfold but the country seems to be skating on thin ice.

How do markets react to such events? These events produce uncertainty and the markets do not like that. So they react by marking stocks down. But they can also throw the venom out soon and get ready to jive again.

When the news of the Pakistani infiltration in Kashmir came in May 1999, the markets carried on as usual. It was only when the MIGs of Squadron Leader Ahuja and Flight Lieutenant Nachiketa were downed on May 27 that our markets too dived by 111 points, or 2.7 per cent, to 3862. They fell again the next day by 187 points, a total reaction of 298 points or 7.9 per cent.

By the time the Kargil war was over on July 12, the markets too had reached a new high at 4678 the next day. This was a rise of 1003 points, or 21.44 per cent, from the day Vir Chakra winner Ahuja laid down his life.

In the aftermath of September 11, we tumbled from 3150 to 2594 , a fall of 556 points, or 17.65 per cent, in eight sessions. The fall was aggravated by the fact that we reacted first to the incident on September 12 and then we reacted to the fall of the US markets when they reopened the next week.

Our markets fell again on October 8, 2001, when they reopened after a weekend bombarding of Afghanistan. The fall was just 3.37 per cent. There was no looking back after that. By December 7, two months after the first bomb was dropped, the Sensex had bounced back 623 points or 22.15 per cent, at 3436.

Unless terrorists strike again or the army comes out of the barracks, the market should be able to claw its way back as in the past.

The only hitch is that this time there would be many willing to book profits out of choice, not necessarily out of panic, which can snowball into something big. As we usher in the new year, here's hoping that democracy emerges stronger in the neighbourhood. Our markets are capable of taking care of themselves.