IMPACT OF KASHMIR ON MONEY MARKETS

Vol 3, PW 11 (23 Jun 99) People & Policy
     

Indias stock and currency markets have been on a roller coaster ride the past four weeks since New Delhi ordered air force and army bombardment to flush out Pakistan-backed Moslem militants from Kargil in Kashmir.

The 30-share Bombay Stock Exchange(BSE) sensitive index, which stood at 4,060 points on 25 May (when the air force began bombing) plunged to 3,700 points on 28 May on news that two Indian fighter jets had been shot down. This raised fears India would declare war.

The rupee which was sluggish for several months at 42.70 to the dollar began plunging, closing at all-time lows almost every day, and reached 43.33 to the dollar on 15 June. Soon, however, Indian military gains and growing international support, particularly from US President Bill Clinton, saw the markets recover.

The BSE index closed last Friday (18 June) at 4,109.89 points, while the rupee closed at 43.14. Brokers reckon the markets have begun to consolidate and the current gains should be continued into next week.

The turning point was news that Clinton had telephoned Pakistan Prime Minister Nawaz Sharif (see above) and asked him to pull out his troops, vindicating India's stand that the Pakistan army was actively involved. The markets were also cheered by reports of possible US sanctions against Pakistan for its role in the conflict.

"If the US slaps sanctions against Pakistan, the markets would get a further boost", said stock broker Gaurav Sanghvi. The markets seem to have recovered from their initial nervousness but brokers said Kashmir will remain a headache because the military in Pakistan acts independently of the elected government.

"You cannot rule out some crazy general launching a war", said broker Sanghvi. Analysts say the Kargil conflict is costing India about $4m a day.