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Limited impact on fund inflows

Limited impact on fund inflows
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First Published: Thu, Nov 27 2008. 11 52 PM IST
Updated: Thu, Nov 27 2008. 11 52 PM IST
Mumbai: Indian industry and markets could, at least in the short term, feel the damaging fallout from the terror attacks in the heart of Mumbai, seen as a plot to scare away foreign investors and tourists from Asia’s third largest economy. But India’s long-term potential should help it weather the impact, investors say.
“Sadly, those efforts will be partly successful,” said Christopher Wood, chief strategist of foreign brokerage CLSA Asia Pacific Markets, in a report on Thursday. Wood has stayed in one of the Mumbai hotels targeted in the attacks on at least 20 occasions.
Though there have been increasing incidents of terrorism in India in the recent past, the latest development targeted venues where foreigners are most likely to be present, Wood noted. The targets in south Mumbai included two luxury hotels and a cafe popular with foreigners.
At least 101 died in the attacks that forced the closure of schools and colleges and halted trading in stocks, bonds and the currency on Thursday.
India’s commercial capital has faced terrorist attacks at least six times between 1993 and 2006. A series of bomb blasts ripped through 13 places, including the Bombay Stock Exchange, killing 257 and injuring 713, in 1993. In 2006, at least 180 were killed and 714 injured in seven bomb blasts on Mumbai trains.
But none of those incidents had induced immediate fear of such magnitude among the people who make decisions on putting money into the country’s firms and markets.
Amid the global financial turmoil, foreign institutional investors, or FIIs, the main driver of the Indian stock market, have taken out about $12.5 billion from Indian stocks this year, pulling down the country’s benchmark index, the Sensex, by 56%. FIIs had invested $17.4 billion in 2007.
“In the short term, it does not mean well for us,” said Ranu Vohra, managing director of investment bank Avendus Advisors Pvt. Ltd, that has its office at the Trident hotel, one of the terrorist targets. “What has been under siege are business landmarks. In the short term, it will have an impact. It will take time to heal.” Still, Vohra said the attacks were unlikely to cause a dramatic drop in FII inflows. “I do not anticipate any change in portfolio investment levels from where we are.”
Dan Tennebaum, managing director of India Capital Research, an FII equity research house, whose office is a stone’s throw from the Trident, is not about to pack his bags. “We are not going anywhere, nor are our investors—neither physically nor with our money,” Tennebaum said.
Company executives also rule out a hugely adverse impact on foreign direct investment, or FDI. “India remains a very positive FDI location and we hope that the incident will be investigated and dealt with in a calm and fact-based manner,” said Wilfried Aulbur, managing director and chief executive officer of Mercedes-Benz India Pvt. Ltd.
In the first five months of the current fiscal, FDI flow has been $6.5 billion, against $2.7 billion a year earlier.
Reuters contributed to this story.
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First Published: Thu, Nov 27 2008. 11 52 PM IST