High investment returns in India outweigh fear of terrorism

High investment returns in India outweigh fear of terrorism

New Delhi: Last week’s one-year anniversary of the Mumbai siege was a reminder of India’s vulnerability to militant attacks.

But analysts say high returns for investors in the country this year show they are unfazed by the risks.

“The attacks haven’t deterred investors," said senior Asian economist Robert Prior-Wandesforde at HSBC in Singapore. “The perceived advantages of India as an investment location are clearly dominant."

Indian markets have seen a surge in foreign capital flows that has driven the benchmark 30-share Sensex index up more than 70% so far this year and the rupee to a one-year high against the dollar.

The lure of strong returns with many developed nations mired in economic slowdown has outweighed concern about the threat of more attacks like the rampage last November by 10 Islamist gunmen in which 166 people died, analysts say.

“Institutional investors and companies see Asia as the future, not the Western world, and within Asia, India -- along with China -- is attracting a lot of interest for very good reasons," said Prior-Wandesforde.

Mumbai is the financial hub of South Asia, a region ex-US president Bill Clinton in 2000 dubbed the world’s “most dangerous place" due to the long-standing hostility between nuclear-armed India and Pakistan, and the siege came at a bad time for the economy.

The first anniversary of the Mumbai attacks, which India blamed on the banned Pakistani militant group Lashkar-e-Taiba, was marked Thursday with a series of remembrance ceremonies for the victims.

At the time of the siege, India’s economy was already staggering from the effects of the worst global financial crisis since the 1930s and investors were racing for the exits.

The attacks’ timing was “abysmal" from an economic viewpoint, said Deepak Lalwani, India director at London’s Astaire and Partners.

In 2008, overseas funds sold Indian stocks worth $13.13 billion for the year, against a record investment the previous year of more than $17 billion.

But India’s economy has made a stronger-than-expected recovery, prompting a return of investors who have also been cheered by the prospects of political stability after the decisive re-election win of the Congress party.

Foreign funds have bought equities worth nearly $15.5 billion so far this year.

“The markets in 2009 look set to end on a cheerful note after a rather ghastly 2008," Lalwani said.

The latest global market turmoil triggered by Dubai’s request for a debt payment moratorium for its flagship investment vehicle Dubai World is not expected to have a big impact on Indian markets.

“Longer term, it won’t affect the India story," said Lalwani, a reference to India’s upbeat investment prospects.

A top government advisory panel has forecast the country’s economy will grow by about 6.5 percent this year and seven to eight percent next year.

“The attacks have been long forgotten by investors," Ian Gomes, chairman of global consultancy KPMG Emerging Markets, told AFP by telephone from London.

“From our interactions with people, it seems they’re looking at investing in India purely from a standpoint of whether they can make money and India is seen as a place that can do that for them," he said.

After the attacks, the government moved P. Chidambaram, who as finance minister won kudos for steering India through four years of nearly 9% growth, to the home ministry to bolster the fight against militancy.

Early in November, Chidambaram insisted to a conference of global fund managers, venture capitalists and corporate chiefs in New Delhi that India was “no more vulnerable (to attack) than other countries".

“Should there be an attack, we believe we have the capacity to contain it and respond in a swift and decisive manner," he told the conference.

The threat of militancy does “not affect our capacity to promote investment and promote growth," Chidambaram said.

But commentators say India needs to take more effective measures to prevent another assault, with the capacity of its police and intelligence forces areas of key concern.