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That Markets Rose During The Kargil War Means Diddly Squat To Markets Today


The Indian Army has conducted anti-terrorist operations in Jammu and Kashmir and that caused a flutter in the markets yesterday, but things seem to have calmed down. You will hear that war is good for Indian markets. Because, they’ll tell you, look at what happened in the last big war: Kargil. This was fought between the Indian army and the Pakistani Army between May and July in 1999. Ooh, you think, what an awesome move and war is good for India!
That’s a move from 970 on May 3, 1999, when Shepherds found Pakistani armymen in Indian territory, to June 26, when they were driven out and the war was declared over and the Nifty was at 1150. About 20% as a move!
But you have to see the context. This is the same chart, zoomed out a little more. The markets then were supremely volatile. I mean Kargil’s move was just a tiny blip.
We moved from 800 in November 1998 to 1800 in Feb 2000 – more than a 110% rise in the index – in about 15 months.
It wasn’t a big deal to move up that much in two months.
And then there were other factors:

  • Not quite as many foreign investors in India’s markets. Now they own a substantial chunk of Indian stocks, but then their operation was minimal. It’s quite likely that if there is a full fledged war, some of these foreign participants will reduce their exposure to India.
  • No Derivatives at Kargil time. While the badla system was on, the real situation in derivatives today probably eclipses what badla did then, many times over. Today a large reduction in volatility has come through the trading of options which just didn’t exist then.
  • Relatively less Arnab. We had crazy news anchors, but the situation of today where every news item is converted to a feature length movie that primarily involves shouting matches was not quite as entrenched at the time. In a real crisis today the news channels turn reality into fiction many times a day – and the impact on markets tends to be more pronounced.

Don’t expect that because one war – Kargil – saw the market rise, that markets will welcome a war. They might, and they have done so a few times in the west as well, but in general, things have changed. Plus, we have a sample size of one event in the past – that’s like saying this coin will fall heads again because it fell heads the last time.


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