The Hindu Business Line : Dalal Street's crisis matrix

BETWEEN the BSE Sensex at 6,498.06 on December 24 and its 14.97-point ascent to 6,513.03 last Monday, came a Magnitude-9 earthquake and a tsunami that left hundreds of thousands dead from Indonesia to Kenya, all along the Indian Ocean.

Over the next couple of days the Sensex gained steadily, closing at 6,563.48 on Tuesday and 6,567.94 on Wednesday. South Asia was reeling under the biggest natural calamity in recent times, but Dalal Street appeared to have digested it. Three days after the Sumatra-Andaman Islands earthquake, the Sensex's total gain was a tidy 69.88 points.

In contrast, when the relatively strong economy delayed government formation by a few days in May, the Sensex shocked with its largest intra-day slide of over 800 points. It was a meltdown though the earth had not cracked open and people had not died. Within the narrow spectrum of reaction to calamities too, Dalal Street lacks consistency.

On January 26, 2001, when the Gujarat earthquake occurred, the stock exchange was closed, being a national holiday. The previous day, the Sensex had closed at 4,330.22, a shade below its earlier close of 4,326.42. When the temblor occurred, it rattled much of western India including the country's financial capital.

With a Saturday and Sunday following the earthquake, the tragedy was two days old by the time Dalal Street got a chance to react. Yet, it dropped 95.65 points, the Sensex closing trade on January 29, 2001, at 4234.57. The next day it recovered, making up for the decline with a close of 4372.04.

Gujarat has several big industries and is next door to Mumbai. The Andaman and Nicobar Islands, which were severely hit by the recent tsunami are economically less important and specks on the map. A great human tragedy, but it didn't fit the Dalal Street matrix for a crisis. Or is there indeed such a matrix?

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