Long-term investors look for bargains

Mumbai: For India's wobbly stock market, the terror attack on Mumbai will put more downward pressure on prices in the coming weeks as risk factors ratchet up, but long-term investors will be looking for opportunities to grab bargains.

The heightened risk should further erode the weighting of Indian shares in the all-country Asia index of Morgan Stanley that has already dropped to 3.6 per cent from about five per cent a year ago, traders said.

India has a tiny 0.6 per cent weighting in the world index. "There will be turbulence," said equity trader Kartik Dalal. "The attacks have dented any chances of a recovery in the short term."

Hotels and tourism-related services, which had been witnessing a slowdown, will take a hit because the violence will scare away business and tourist travel for several months.

Shares in Indian Hotels Company (IHC) that owns the famous 105-year-old Taj Mahal Palace and Towers, the centre of heavy fighting which caused extensive damage, slumped 17 per cent to Rs40.20 when trading resumed on Friday after the attacks had closed all markets on Thursday.

The heavily armed gunmen who reportedly came by boat struck south Mumbai on Wednesday night, firing indiscriminately at the main railway station before storming into the luxury Taj Mahal Palace and Oberoi-Trident hotels.

The standoff ended on Saturday morning when the last of the terrorists was killed at the Taj.

At least 195 people were killed in the bloody siege and more than 300 were wounded, a government official said.

Dalal said foreign funds who have already sold $13.76 billion of Indian shares in 2008 could pull out more as the risk factors rise after the attacks.

The outflow has put more pressure on the rupee, which has lost more than 21 per cent this year. The unit closed at around Rs50 to a dollar on Friday, but traders said it could weaken towards Rs52.

This is because of an expected sharp slowdown in foreign investment until the dust settles down on the attacks and business confidence is restored. However, the outlook for the stock market is seen improving in the longer term as the economy expands at around seven per cent, well above the growth in most countries and in contrast to the recession in some countries.

The top 30-share Sensex pulled out of a 1.5 per cent slide at the start of trade on Friday and climbed 0.7 per cent to 9,092.72, its highest close since November. 17. The index rose nearly two per cent on the week, but was down 7.1 per cent in November, falling for a third month.

Mark Mobius, the head of Templeton Asset Management, said the negative impact from the deadly attacks would be shortlived as long-term investors focused on India's still vibrant economy.

"It's a fast-growing economy and we can't allow this kind of incident to sway our decisions regarding where we want to invest," Mobius told Bloom-berg Television. "India will rise from this and prosper."

For long-term investors, Indian shares offer good bargains after the market lost more than half its value this year while the rupee shed over a fifth, making new investment relatively the cheapest in comparison to earnings among emerging markets.

Data on Friday showed the economy grew at its slowest pace in nearly four years in the September quarter, but the 7.6 per cent rise was better than market expectations for 7.2 per cent though below 7.9 per cent in the June quarter.

Farm output grew by 2.7 per cent in the September quarter while factory production expanded five per cent from a year earlier, also slower than in the previous three months.

Services, which account for more than half of gross domestic product, rose 9.6 per cent but again slower than last year's double-digit growth.

The central bank has slashed its main short-term lending rate by 1.5 per centage points to 7.5 per cent in the past two months.

The attacks will also put pressure on the central bank to cut rates to bolster business confidence, traders said.

Ratings agency Standard & Poor's said the Mumbai attacks should not affect India's sovereign rating providing they are an isolated case.

- The writer is a journalist based in India