Business | Markets
Markets will shake off effects of attack
Deadly attacks on India's financial capital look unlikely to trigger major selling by foreign fund houses, but this could change if the killings lead to wider violence.
- Reuters
- Published: 23:24 November 28, 2008
Hong Kong/Mumbai: Deadly attacks on India's financial capital look unlikely to trigger major selling by foreign fund houses, but this could change if the killings lead to wider violence.
Emerging market fund managers said on Friday that for long-term investors, even the attacks of the magnitude seen last week are overshadowed by issues like growth rates and interest rate policy, assuming the fallout remains contained.
The fact that billions of dollars have already left the country as the the global financial crisis sparked a stock market selloff also means remaining investors may be longer-term in outlook and focused on now-lower valuations, they said.
"This is not going to alter our view in terms of how we see India. The economic fundamentals are far more important than these events," Anthony Muh, head of Asia Pacific for AT Asset Management in Hong Kong, said of the attacks.
"Things like this would only factor and impact more meaningfully from a longer-term investor perspective if it did eventually lead to destabilising the government, which led to a fundamental shift in its policy."
AT Asset manages about $1 billion (Dh3.67 billion) in assets, about 8 per cent of which is invested in India.
Muh said the firm was already underweight India relative to fund benchmarks before the attacks, amid concern about its decision to hike interest rates earlier this year.
But he said it was reviewing India's weighting, and was encouraged by the likelihood that its central bank will cut rates.
Trading resumes
The stock market opened weaker yesterday before moving into positive territory, as trading resumed after the attacks which killed at least 140 people as of late yesterday and led to a one-day closure of the financial markets.
The benchmark share index is still down more than 50 per cent this year.
Foreign investors have sold a net $13.7 billion of stocks as the market tumbled from from record highs hit early this year, a marked turn-around from record buying of $17.4 billion in 2007.
India's weighting in the MSCI all-country Asia index had already dropped to 3.63 per cent as of Thursday, compared with 5.15 per cent 12 months ago.
The country has a small 0.59 per cent weighting in the all-country world index.
Only 19 of nearly 10,000 global offshore equity funds tracked by Thomson Reuters Lipper had India as their top country exposure, according to the most recent data.
About 450 of them had India among their top-10 country exposure.
"A lot of the hot money had already left," said Alistair Thompson, deputy head of Asia Pacific (ex-Japan) Equities with First State Investments in Singapore.
"Valuations are now beginning to look really attractive. I'd imagine genuine long-term investors would be looking very closely ... to see if they can pick up some high quality names at much cheaper prices."
First State manages about $17 billion in its Asia-Pacific and global emerging funds, about 5 per cent of which is invested in India. Thompson said he was not selling as a result of the attacks but that he did view increased religious tension as a major long-term risk.
Other global fund houses with significant investments in India include Franklin Resources Inc and JPMorgan Chase & Co.
JF Asset said in a statement that India remained neutral in its regional portfolios and that there had been no change in its investment strategy.
It said the markets could shake off the effect of the attack, assuming political parties do not use this as an excuse to fuel communal tension.
Foreign fund managers did express concern that the attacks could hit foreign capital inflows, a significant worry given the country's current account deficit, and said that the country's already high political risk premium could rise even further.
In context
But they said this would also have to be taken in the context of the long-term potential for the world's second most populous country.
"While the human toll of yesterday's terrorist attack in Mumbai was severe, the medium to long term economic impact is likely to be more muted as unfortunately, India is no stranger to terrorist attacks," said Bratin Sanyal, head Asian equity investments with ING's fund management arm.
Indian shares up marginally
Bangalore: Indian shares rose 0.7 per cent on Friday as investors covered their short positions on the last day of monthly derivatives, but trade was choppy after deadly attacks on the country's financial capital of Mumbai.
Analysts said the rise, which took the main index to its highest close in nearly two weeks, was underpinned by data that showed Asia's third-largest economy grew by a better-than-expected 7.6 per cent in the September quarter.
"Guns don't control the markets, it's the fundamentals that control the market and today you saw the economic growth numbers that were ahead of the forecast," said Amitabh Chakraborty, president of equities at Religare Securities.
Heavily armed militants on Wednesday stormed several places in south Mumbai, including two luxury hotels, killing more than 100 people and wounding over 300.
The fighting, which was continuing yesterday afternoon, shut down financial markets on Thursday, and had sent stocks sliding 1.5 per cent at the start of the trade.
The main 30-share BSE index ended up 0.73 per cent, or 66 points, at 9,092.72, its highest close since November 17, with 16 stocks rising.
Rise
Outsourcer Infosys Technologies led the gains, rising 4.5 per cent to Rs1,240.60 (Dh91.8) as investors hunted for bargains in battered stocks, traders said. Tata Consultancy Services gained 5.9 per cent at Rs558.05.
The benchmark rose nearly 2 per cent on the week, but lost 7.1 per cent in November, falling for a third month in a row.
Shares in Indian Hotels Co Ltd fell 17 per cent to Rs40.20 after its main hotel Taj Mahal Hotel was badly damaged by the militant attacks.
"In the short-term, the country's risk premium will go up and it will not be viewed as a safe destination," Chakraborty said. "In the coming few days, our markets will move in tandem with the overseas markets."
Volume was below normal at 196 million shares in the broader market, where 1,265 losers were ahead of 1,059 gainers.
Share this article
Related Articles
More from Markets
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Tight security for air show
Police announce measures to keep people and property safe
-
Nokia aims for 300m customers by 2012
Core focus will be on messaging, maps and navigation, music and applications
-
Court orders freeze on all Saad assets
Many UAE banks exposed to troubled conglomerate
