The index has now moved down to around 3,730 points. Market players are faced with a difficult choice. While it is natural for speculative holdings to be toned down, the nagging question was what exactly would be the right stance.

This is because stock prices were considered attractive in the light of their competitive position vis-a-vis other similar scrips in the region, as also FIIs having good flow of funds to invest. So anyone who had built up a position had to carefully weigh the option between taking a loss or carrying the position over. As the government had repeatedly indicated that it was aiming at a quick removal of the infiltrators, the market picture could soon change.

If anyone did square off taking a loss, it could be only onhopes that the market could slide down further and one would be able to pick up the scrips even lower. Here is an interesting case of price discovery. No one would want to assume easily that the happenings on the border are not really serious. The infiltrators are perched on top of razor-edge peaks close to the line of control in good numbers. And it is suspected that they are being supported by Pakistan's army.

Under such conditions, one cannot yet write off the skirmishes as having a limited impact. The possibility of escalation cannot be ruled out, or so it would seem.

But let us examine that a little more closely. Pakistan's economy is not doing too well. In fact, not too long ago the country had to be rescued with funds. And in order to make that possible, Pakistan was willing to comply with the conditions imposed by the US in terms of its military and nuclear stance.

India, too, had recognised the need to ensure that its position on nuclear testing was not misunderstood as a war-mongeringapproach. In fact, a good balance of nuclear deterrence has been established between the two countries. Not only that, both countries are running neck and neck in terms of missile launching technology.

In other words, the chances of the current skirmish between infiltrators on the Indian side of LoC and the Indian Army escalating into a full blown war do not seem high. Surely the confrontation will continue for quite some time, given the difficult hilly terrain.

In the meanwhile, the US has already expressed its concern over the confrontation. As far as India is concerned, studies have shown that US restrictions have not had any great impact on Indian business. Nevertheless, India has been at pains to cultivate a good relationship with that country.

On Pakistan's side, Nawaz Sharif has a rather comfortable position, and really does not need any tactic to distract his own people. He has already consolidated his position both on the political and military front.

For all one knows, the strategicinfiltration must have been a smart move, which had outsmarted both the Indian army and intelligence. To hold on to this advantage would add prestige to Sharif.

In as much as the action is on the Indian side of the border and with suitable international lobbying, India can still work out a plan by which it reclaims its territory and removes the infiltrators, without escalating the action into a war between India and Pakistan.

Ultimately, the fund managers would have to weigh the risks and rewards at the present juncture. The nuclear deterrent between the two nations, the pressure from USA, and the Indian government's need to settle the issue quickly in the light of the forthcoming elections would all lead to a solution in the shortest possible time. Some ex-Army people have opined that the infiltrators could be removed in a matter of days. But right now it is difficult to rule out an escalation. But in the event of an escalation, India would have no option but to intensify greatly its militaryeffort. And the question would then rise as to whether Pakistan would come out in the open in a military confrontation.

At this juncture, in the light of the Lahore agreement, Pakistan would have to be sensitive to international watching and reaction if it wants to step out into a war on what is essentially an infiltration into Indian territory. Surely, it will be difficult to rule out an increase in the intensity of the confrontation. But on the other hand, I feel the background between the two nations is not explosive enough to result into a full-scale war. If that is the judgment, the current scare would give very good opportunity to fund managers to pick up scrips at very attractive prices.

Three months from now, the skirmish would have lost its scary dimension, and stock prices would move up again. And any fund manager who invests now at a lower price can look forward to an appreciation of 30 per cent in the short run.

In fact, I would not be surprised if some end up making 100 per cent gain, asthe economy has begun to look up. Let us not forget that with the first sign of economic recovery, most had thought that a Sensex level of 4,400-4,800 in a year's time was not impossible.

And that picture would stay in the long run. What we see right now is of very short-term duration. Therefore for the next week, the right thing is indeed to keep a close watch on how far the market would slide and continue to buy into blue chips.

The important thing is, the moment the danger vanishes, scrip prices will recoil in double time. It is time therefore that those with investible surplus -- individuals, mutual funds and FII managers -- think of making bargain picks. That would only help achieve a return of at least around 30 per cent per annum in the next two years.

In reality, aggressive punters, who like to make a neat pile in the shortest possible time, are likely to jump next week. All said and done, we have lived with the border problem, and it is not going to turn into a Kosovo or Palestine now. And atthe end of the day as quotations flow in, I can already see punters taking aggressive positions in quite a few scrips.