The Sensex could climb if war breaks out in the Persian Gulf.

In the run-up to a possible Iraq war, the Sensex has shed 110 points, or 3.3 per cent, from its recent peak on January 1.

The fall in the world equity markets -- Dow Jones, Nasdaq, Nikkei 225, Hang Seng, and S&P 500-has been over 10 per cent since January. Empirical evidence shows they can only go up if war breaks out.

A study of markets before World War II shows the Dow Jones declined from 154 at the end of December 1938 to 130 in June 1939.

As soon as France and the United Kingdom declared war on Germany on September 3, 1939, the markets bounced back. The Dow climbed to 152 in September 1939.

It again fell to 116 in May 1940 as uncertainty over US participation in the war continued, to slump to 95 in April 1942 before Japan attacked Pearl Harbour. But by August 1945, the Dow had reached 175.

The market recorded its biggest recoveries after Hiroshima (August 6, 1945) and Nagasaki (August 9) were bombed. By May 1946, the Dow was at 212.

Similarly, between January 1990 and January 1991, the Dow dropped from 2,880 to 2,440. But once ground attacks began in the Persian Gulf, it bounced back to 2,880 in February 1991.

Six months after the 1993 bomb blasts in Mumbai, the Sensex recovered 58.7 per cent from 2,036.81 on April 26 to 3,233.14 on November 26. Around the time of the Asian crisis, the Sensex gained from 3,700 in May 1997 to 4,550 by early August.

Post-Kargil (1999), the Sensex pulled back from a bottom of 3,773 on May 28 to the pre-crisis level of 4,030 within a week. By the end of the first week of June, the Sensex was over 4,000, and went on to touch 5,000 by October.

The same pattern occurred around the September 11, 2001, terrorist attacks in the United States.