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Terror strikes may dent business confidence

November 28, 2008 09:14 IST

The terror strike on Mumbai will increase the risk perceptions of doing business in India and may further dent business confidence, which has taken a beating with the global financial crisis and the slowdown in the global economy.

"If these kinds of incidents happen at frequent intervals, it can erode confidence. There will be a setback in the short term but it's not such a thing that things can't be reversed,'' said Ashutosh Agarwala, CFO (strategic finance), GMR Group.

Mumbai has seen this before. "We saw how the US bounced back after the terror attacks. It impacts sentiment but people get on with their task. In Mumbai, people are highly professional and resilient, and will get on with life," said Agarwala.

The foreings institutions have not been investing in the country. A few odd ones who have been investing could take a call that it's a high-risk situation, which will start getting reflected in the risk-rating of India as an investment destination, feel stock market observers.

But some like UB Group chief financial officer Ravi Nedungadi feel that the business opportunity of tapping millions of customers will over-ride any risk perceptions. Immediately though, people planning to visit India on business may defer their plans.

The stock markets, which have already been battered 60 per cent this year, may open a bit subdued tomorrow as investors could choose to be cautious for a day or two, though Indian markets have reacted strongly to terror attacks in the past.

"The markets will mirror global trends. If it was expected to go up 300 points, it may go up only 150-200 points. If it was expected to fall 200 points, it may more sharply, by 300-350 points. Nobody will buy or sell because of the terror strikes," said Ramdeo Agarwal, chief executive officer, Motilal Oswal, a stock-broking firm in Mumbai.

Unlike the 1993 bombing of the stock exchange, which dented the physical infrastructure, the infrastructure today is safe as it's all electronic but the terror strikes will have a psychological impact on investors, said Agarwal.

What worries business is that if these strikes continue, doing business in India will get difficult. "Mumbai's status as the country's commercial capital and financial hub can get affected," said Issac George, chief financial officer, GVK Group. "For some time, people will be wary. I visit Bombay every alternate day and hold meeting at these hotels. I will have a fear in me the next time I am visiting."

"I would not jump to a conclusion that the terror strikes will undermine Mumbai's potential as a financial hub. The terror strikes in New York (9/11) and London (7/7) did not undermine their status as international financial centres," said Percy Mistry, eminent economist and head of an expert committee on Making Mumbai an International Financial Centre, which submitted a roadmap for the same.

But Mistry feels this attack is a game-changer and underlines that terrorists are trying to target foreign nationals on Indian soil. If this impression gains ground among foreign nationals, it could do damage to India as destination for foreign capital, and foreign nationals may feel unsafe to visit or stay in India.

Ranju Sarkar in Mumbai