After the terrorist attacks in USA on September, the world is unlikely to be the same. This event is as significant as the beginning of a world war and its impact on the investment scenario cannot be brushed aside.

Indian stock markets have already crashed with the Sensex closing at  2831 on Friday after passing through a low of 2770. The fall was alround with the tech stocks taking the major brunt due to the American connection.

Even though the possibility of terrorist attacks on US targets had long been forecast, the manner used and the devastating effect it has generated has stunned the global community. Apart from the immediate losses suffered by the Companies working in the World Trade Center in New York, the corporate world all over USA has been left mentally crippled with the tragedy. We the Indians have already gone through this stage during the serial Bomb blasts in Mumbai and Coimbatore and have developed a resilience to live with it. But for Americans, this is a new experience and their reactions are likely to be stronger.

It is unfortunate that India will be in the center of the activities that would follow now. A war in the Asian zone is imminent in the next fortnight and India would be an indirect party to the positive and negative effects that flow therefrom.

During the last week the biggest mistake committed by India was that the Stock Market was kept open when it was clear that nothing but panic and uncertainty would prevail. Indian stock markets today depend heavily on the institutions who are constrained by the system to react in the current situation only with a “Sell” order. By not insulating the market from this temporary situation, SEBI has allowed the FII s to sell out creating a crisis both in the stock market as well as the foreign exchange market. 

Considering the extraordinary situation, it would have been logical to  close the markets until the NYSE itself had opened. By acting without vision, SEBI has proved once again that it is as dangerous to Indian Investors as  Osama Bin Laden is for the Americans. 
 

Despite the immediate negative fall out, every tragedy also creates an opportunity for new  business. Similarly, this tragedy will create fresh opportunities arising out of the reconstruction of the physical and IT infrastructure in USA affected by the attack. It will also increase the IT spending in the form of better disaster recovery systems. There is also a possibility that some of the US IT majors may strengthen their overseas development centers so that the “Country Risk” associated with their production bases get dispersed.  

India could benefit out of such  reconstruction and dispersal  of IT infrastructure, provided a proper strategy is developed by NASSCOM and individual State Governments in India to tap the emerging opportunities. 

However, in the immediate next fortnight, India can be at war and suffer economically due to increasing oil prices and increasing terrorist attacks within the country itself. The panic reaction that has already set in needs to settle down after an assessment of how NYSE  reacts to the situation when it reopens on Monday. 

Knowing the American psyche, the panic in USA may be lesser than in India and this may lead to some stabilization of the markets over the next weekend. Even though the new war can be a long drawn affair, the US economy is unlikely to let itself be affected significantly. It may even adopt a low intensity “Strangulation Strategy” to isolate Afghanistan if Pakistan cooperates. 

It is only in the event of a non cooperation from Pakistan that US may have to use India as a base and launch a more devastating war. General Musharaff however is too intelligent to let this happen and he can be expected to manage  defusion of the situation by offering Pakistani support to USA at least to some extent. He will ofcourse incur the wrath of the fundamentalists in the process and may accelerate the election process and shift responsibility to an elected Government  to survive in the long run. It is only when the next Government in Pakistan takes control that the long term strategy of Pakistan on associating with Afghanistan and the consequential reaction of USA would crystallize.

Until Pakistan’s stand on supporting USA becomes clear, it is better for investors to keep off the stock markets. The only investment worth considering now is Gold in its pure form provided one can safeguard the asset. Otherwise the best option is to hold ones asset in cash form at Bank.

Na.Vijayashankar
September 15, 200