Mumbai, Nov. 23: The two Kims of North Korea — Kim Jong Il and his son Kim Jong Un, gave a bad scare to stock markets around the world on Tuesday. The shelling by North Korean army may have been directed at South Korea, but the biggest impact was seen here in India, where the BSE Sensex had lost over 600 points during the day.
However, the sharp intra-day fall on the Sensex reflects the fragile state of Indian markets rather than the tensions on the Korean peninsula.
Indian markets went into a free fall in the afternoon on the news of North Korea firing shells on an island held by South Korea. By 1.15 pm, the BSE Sensex was down over 600 points. It recovered after 1.30 pm, when European markets opened —without any significant weakness.
Clearly, European markets didn’t lay much store on the news and they were right. The maritime border between the two Koreas has seen other, deadlier exchanges of fire in the not so distant past. A confrontation in 1999 resulted in a North Korean ship being sunk and 30 dead North Korean sailors.
Another confrontation in 2002 saw a South Korean ship sunk and severe damage to a North Korean vessel. Earlier this year, a corvette operated by the South Korean navy was sunk in the same region — allegedly after being torpedoed by a North Korean submarine.
None of these incidents escalated beyond words. So why would it be any different this time? In fact, analysts point out that the North Korean action, which is a bit of sabre rattling, was response to a military exercise by the South.
So why the fall and the volatility in the Indian market? “This has more to do with the run-up in value and the money coming in that our markets have seen,” says Mr Nandkumar Surti, chief investment officer, JP Morgan Asset Management. “We have seen a big run up in the past month and a half, two block buster public issues have seen people make money and we have done much better than other Asian markets,” he adds. Indian market has been amongst the best performers in Asia this year, so far. It is up 14 per cent in 2010 — against a 14 per cent fall in Chinese market over the same period. Clearly, investors have made money and are feeling nervous about their gains. Thus, the roller-coaster ride of Tuesday should be seen for what it is – a volatile market.