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I am not able to understand why the Indian stock market should go into a tailspin when an American bank collapses?

Well, Lehman Brothers, the investment bank you are alluding to has got huge exposures to Indian equity. Guesstimates are that it has sunk some Rs 2,000 crore by way of FII and private equity investment in various companies. It is in dire need of funds. Therefore it would try to convert as much of its investments as possible into cash. When there is such a distress sale, the prices inevitably crash.

In addition, the stock market is driven by sentiments and herd-mentality. When a big FII sells, other FIIs follow suit. Those who propounded the decoupling theory that recommends de-linking from the US economy not long ago are having to eat their words. The US all said and done accounts for a quarter of the world’s GDP. You may love it or hate it but you cannot ignore it.

S. MURLIDHARAN

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