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As Indian jets crash near LoC, financial markets nosedive

V V L N Sastry in Bombay

Indo-Pak skirmishes in Kashmir were expected to subside today, leading to a recovery in the stock markets. However, the situation became war-like when Pakistan shot down two Indian jets near the Line of Control or LoC, further eroding the confidence of market players.

The market has been following the Kargil developments to the second, taking note of every word uttered by either side. The Indian government has said there will not be any let-up until all the Pakistani infiltrators are evicted from the region.

This has been perceived by the market as an indicator to continued tensions in the coming days. The mood, predictably, was dampened by the day's developments.

The impact of the Kashmir issue on the financial and capital markets is likely to be considerable, given today's sharp fall of the Indian rupee.

This will impact on the foreign institutional investors who would find it difficult to pump in fresh money. And this at a time when the currency is depreciating!

A section of market players feels that the FIIs may unwind their positions in the event of a full-scale war.

Should that happen, core sector and commodity stocks will feel the pressure. For they have shot up in the recent past, either due to the Dow's upswing or due to the general upswing in the economy.

With the fall of the rupee today -- and the fall is expected to continue -- export-oriented counters are likely to fare better in terms of earning potential. Software stocks which have been lying low for the past one month, might attract buyers' attention.

If trouble in Kargil continues, speculators will unwind their outstanding positions. The software sector will be the most affected in such a situation.

Investors would do well to abstain from the markets for the next couple of days. Tomorrow (Friday) being the last day of the settlement at the BSE, fresh positions are unlikely. Cash is king, as a few dealers would say.

The writer is vice-president and head of equity research and investment banking, Khandwala Securities, Bombay.

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