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Ride to panic and back news
25 May 2002

Mumbai: It was a journey to hell and back for the Indian financial market over the last one week. Ever since the Kaluchak army camp attack, fear of a retaliatory attack by the Indian armed forces ripped the markets apart. Thirty-four persons, mostly families of army personnel, were killed when militants stormed a heavily guarded camp of the army at Kalochak on the Jammu-Pathankot highway on 14 May 2002.

The stock, currency and bond markets of both India and Pakistan reacted sharply, shedding value in the process, as the war rumblings got louder on each passing day. Market capitilisation of over Rs 50,000 crore of the Indian stocks was wiped out in just eight trading sessions since the attack and the Karachi Stock Exchange (KSE) index lost around 10 per cent of its value during the week. The rupee also lost some grounds and dipped to its record low of 49.04/05 against the greenback on panic over an imminent war.

The stock market was the worst hit, with the Bombay Stock Exchange (BSE) Sensex losing some 330 points (around 9.5 per cent) in just eight days from 14 May. The sentiment in the market was already weak over the gilt scam, which recently rocked the financial market, and worries about its spill over on to the bourses. On the day of the attack it lost around 22 points to 3420, and since then it was a long journey downwards.

Fears of escalation in tension at the Indo-Pak border emerged after Prime Minister Atal Behari Vajpayees statement, that New Delhi will counter the terrorist strike, at an army camp in Jammu on last Tuesday. There was considerable confusion about Vajpayees usage of the word pratikar, as a section of the media interpreted its meaning as retaliate, while the Prime Ministers Office later clarified that Vajpayee had meant India must counter terrorism.

Meanwhile, the economic offences wing of the Mumbai police arrested tainted stockbroker Ketan Parekh in connection with a Rs 84-crore fraud case. At the same time, the rumours of interrogation of a leading operator for possible involvement in the gilts scam also affected the sentiment. Thereafter the tough talk by the Indian side, especially after the prime ministers statement, took its toll on the markets.

Although there was no panic, players preferred to stay away from the market amid the prevailing uncertainty. Stocks in tech, automobile, cement, telecom and media sectors lost ground on selling pressure. While the selling pressure was almost across the board, buying was seen in the stocks of select public sector undertakings after the cabinet committee on disinvestment on Saturday announced that Reliance Industries had acquired the governments 26-per cent stake in IPCL following its aggressive bid.

To aggravate the fear, Standard & Poor, the international rating agency, said the rising tension with Pakistan, a nuclear power nation, would push Indias sovereign ratings closer to the edge, as it will worsen the deteriorating fiscal situation.

Then came the high-profile visit by the Indian prime minister to the troubled state of Kashmir where, while addressing soldiers at a forward post, Vajpayee said the time has come for a decisive battle (against Pakistan). Stock prices turned volatile as Vajpayees statement indicated that a war with Pakistan was inevitable. Addressing army men in Kupwara district of Jammu and Kashmir, Vajpayee said: We want peace and India to be prosperous, but we are forced to fight a war. We will win this war and let there be no doubt about it.

Without naming Pakistan in his speech, Vajpayee said: We tried all kinds of peace efforts with our neighbour, but nothing has worked with them. The enemy does not fight with us directly; they are fighting a proxy war. They are preparing young men to fight in the name of jihad. They are employing mercenaries and do not come in front of us. This led to the largest fall in the recent times, with the Sensex falling by 138 points during intra-day trades to 3128, an eight-month low, but it recovered to close 96 point down at 3186.

Across the border the Pakistan financial market also faced the tremor. The KSEs benchmark, KSE 100-share, fell over 10 per cent since the tension between the two nuclear advisories escalated.

While the dark clouds were looming over the financial market, there were glitters in the gold market. The yellow metal shined as the gold prices soared a new six-year high, as people rushed to keep their cash in gold. The 10-tola gold bar (popularly known as gold biscuit) shot up to Rs 62,000, recording a gain of over 2,000 over a week.

As the backdoor diplomacy worked overtime and international pressures were put on both Pakistan and India to avert a war, the war rhetoric got less sharp. And the stage was set for a rebound. It was triggered by Vajpayees comments at a news conference after markets closed on Thursday that he saw no war clouds just a day after he told troops to prepare for battle.

On Friday, the stock market got into a buying mode and stocks across the board gained sharply. The Sensex surged by 142 points (4.55 per cent) at 3255.62 points, logging its biggest single-day gain in nearly 15 months and regaining half the losses over the last eight days.

The KSE index ended up 135.64 points (8.8 per cent) at 1663.21, clocking the largest daily gain in points in a decade (since 18 November 1991). The Pakistani rupee ended at 60.08/10 per dollar, barely changed from the previous close of 60.05/07.

The Indian rupee closed at 48.9850/9925 per dollar, bouncing off Thursdays record closing low of 49.04/05.

It was a yet another roller-coaster ride for the market, as political worries hit the economic sentiments while both India and Pakistan dangerously clamoured over Kashmir, putting a big question mark over the safety of the subcontinent.

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Ride to panic and back