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Bourses face FII flight if Baghdad battle rages

New Delhi, March 25: A long and messy US-led military campaign against Iraq will choke off overseas investments into the Indian markets and drive down the bourses, analysts and dealers said today.

At the start of the military campaign, foreign institutional investors were shovelling cash into the Indian bourses to scoop up shares in India’s swooning markets even as stocks rose on the New York Stock Exchange.

Analysts, however, expect the overseas investors to push the sell button if the war drags on, which will spook the world markets and make investors cautious about placing bets on the emerging markets.

“The foreign institutional investors (FIIs) will play cautiously as the war drags on,” said T. P. Raman, managing director of Sundaram Newton, a fund management firm. He reckoned the FIIs would go easy on equity purchases if the US troops got bogged down in the Iraqi desert.

Foreign funds, which provide the ballast to India’s liquidity-starved capital market, had purchased equities of around Rs 250 crore last week after sales of Rs 185 crore, according to data released by Securities and Exchange Board of India (Sebi).

Analysts also said the sensex — barometer of the Bombay Stock Exchange — largely mirrors the pitch and the roll of the global stock indices. A lengthy war would spur global oil prices and hurt a firm’s technology spending, especially in the United States which accounts for about 60 per cent of revenues for the domestic software firms.

“The Indian economy is most vulnerable to oil prices,” said Dhirendra Kumar, chief of fund tracker firm Value Research. “Although, the country is better off economically compared with the Gulf war in 1991, we are not as insulated from the global market conditions any longer.”

Dealers said a lingering war would not push up interest rates despite falling bond rates. “Interest rates would hold steady as the market is flush with excess liquidity and coupled with the fact that inflation is already on the rise,” said a dealer with a foreign bank.

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