Business | Economy
Indian economy unlikely to suffer from massacre
Foreign investors may further dump Indian assets after the Mumbai attacks and worry over tension with Pakistan, but the impact will be limited and Western firms facing recession at home remain keen to tap the subcontinent's growth.
- Reuters
- Published: 23:25 December 2, 2008
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London: Foreign investors may further dump Indian assets after the Mumbai attacks and worry over tension with Pakistan, but the impact will be limited and Western firms facing recession at home remain keen to tap the subcontinent's growth.
Two hotels heavily used by foreign businessmen were at the centre of last week's attack which killed more than 180 people.
Indian stockmarkets had already been down more than 60 per cent so far this year, part of a global sell-off that has seen emerging markets suffer even worse than their developed counterparts as investors dumped perceived risk and lenders called in debts.
Foreigners have sold $13.7 billion (Dh50.4 billion) of Indian shares this year, and were said to be amongst the biggest sellers on Monday when Mumbai's main share index fell 2.78 per cent.
The rupee fell towards an all-time low both on the attacks and worsening global and local economic statistics including falling Indian vehicle sales and exports.
"It seems unlikely that the terrorist attacks will have much of an impact on the Indian economy" said senior currency strategist Win Thin at Brown Brothers Harriman in New York in a research note. "However, it will certainly sour investor sentiment at a time when it was already poor. And the attacks come at a time when the economy is slowing and is the most vulnerable it has been in years."
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India's lending market seized up in October as global credit market turmoil hit bank lending, and a 150 basis point rate cut and the release of billions of dollars into the financial system by the central bank has not been enough to stem the slowdown.
Data on Friday showed the economy expanded 7.6 per cent in the September quarter, well below the 9 per cent seen in all of 2007-08 but well above developed economies most of which are seen already in recession.
India's state-dominated banking sector is seen better protected than most from the global crisis, and with the economy more focused on domestic demand and less on exports than fellow Asian powerhouse China some still see it as one of the most attractive emerging markets.
Still keen
"You will probably see foreign investors will be warier than usual after this," said Jeff Chowdhry, head of emerging equities at London-based fund manager F&C. "But we remain positive and see it as an appealing market."
F&C was overweight on India with 10 per cent of its $2 billion in emerging markets there, he said.
He said the attack - in which the gunmen were said to be deliberately targeting those with British and American passports - was not enough to deter F&C from sending staff to India in the near future to maintain contact with their investments.
Investors largely shrug-ged off previous militant attacks, but will inevitably pay more attention to the deliberate targeting of the hotels in which they stay.
Further attacks would spook them further, but without them analysts say the market reaction to last week's events could be short-lived.
Even if it was decided staff travel to India was too dangerous, F&C's Chowdhry said that would not necessarily prompt a sell-off as he would expect major Indian firms to travel to London to maintain heightened contact with their investors.
Fund manager Schroders said it remained underweight on India but was gradually increasing its position believing current prices were attractive after recent plunges. It was now roughly 2 per cent underweight India in its $12 billion emerging portfolio from 4-5 per cent underweight earlier in the year.
Outbreak of actual war between the two nuclear-armed neighbours would change his view on the market "completely and totally", he said - but the impact would not be limited to India and Pakistan. Anything less would make little difference.
"The atrocities have not changed our underlying investment view," said Schroders head of global emerging market equities Allan Conway.
"There will be tensions between India and Pakistan and there is a risk things could deteriorate very significantly -- (but) that is a possibility, not a probability."
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