Shares up as India market reopens

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India's stock market has reopened for trading, after having closed on Thursday following the attacks in Mumbai, India's business capital.

The benchmark Sensex index climbed 66 points, or 0.7%, to close at 9,092.72, having opened more than 1% lower

After a "knee-jerk" fall when trading restarted, "markets are behaving normally", said Arun Kejriwal, strategist at KRIS research.

But concerns exist that the attacks may have a longer-term economic impact.

Risk premium

Mumbai is no stranger to political violence and analysts were sanguine about the impact of the attacks on share values.

"People here don't like this to hammer down the markets," added Mr Kejriwal.

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"Each time we have seen a bounce back and this time will be no exception," said Sarah Hewin at Standard Chartered.

Shares in Indian Hotels Co Ltd, which runs the Taj Mahal hotel, fell 17%, buts shares in hotel operator EIH, which operates the Oberoi-Trident hotel, gained 5.2%.

Overall, the attacks have had little impact on wider Asian markets, with Japan's Nikkei index and Hong Kong's Hang Seng index both rising on Friday.

But Seshadri Sen, analyst at Macquarie, sounded a more cautionary note about Indian stocks. "We have no doubt that the risk premium will rise in the short term."

Commercial heart

The bombs struck at the commercial heart of India, and have - in the short-term at least - thrown many business plans off schedule.

Alpesh Patel, a London-based fund manager, arrived to find the streets of Mumbai deserted and his meetings cancelled.

But business will return to normal, he said.

"They have got no choice, they have to put food on the table. Companies have to survive," he said.

"You get the immediate shock… [but] as with any major city, things move on because they have to move on."

This view is shared by many. "Life does go on in India. It's a very vibrant economy," said Mark Mobius at Templeton Asset Management.

Investment fears

Even before the attacks, the Indian economy had been shaken by the global credit crunch.

Foreign investors have already pulled $13.5bn from India since the global financial crisis started. Shares have fallen 55% this year as investors withdrew money.

But so far, there is little sign that the attacks will deter investors from the huge potential market that India offers.

In the current global climate - characterised by credit tightness and fear of terror attacks - international companies need to demonstrate their resilience, said Mr Patel.

Alice Hunt, a spokewoman for GlaxoSmithKline, said: "The events of the last 24 hours have not affected our longer-term business plans in the country."

Real resilience

The fact remains that India offers investors opportunities that are hard to find elsewhere, said Dr Amit Mitra, the secretary general of the Federation of Indian Chambers of Commerce and Industry.

Its growth rate is forecast at 9% for 2009 and 7% for this year - three times the rate of global expansion and second only to that of China. "India will continue to remain at the vortex of investment. This is a temporary blip," said Dr Mitra.

And while for India, foreign investment is a welcome boost, the real engine of the economy is domestic business - which includes global names such as Tata and Ranbaxy - and savings, which make up 30% of India's economy, compared with 1% in the US.

"92% of the investments that take place in India are from domestic savings, unlike China. Even our exports are by and large domestic exports, not by multinationals, like in China," said Dr Mitra.

"Foreign direct investment brings quality, brings new benchmarks… it is an add on to the existing momentum of India. Unlike China, we are very much self-dependent in terms of capital formation."

Record crop plantings by the country's 400 million farmers should not only boost rural incomes but also support consumer spending, helping India to reach its growth forecast for next year.

Even if GDP growth next year is less than the forecast 9% and touches 7%, it is still "quite decent, given that it's a very tough year next year," said Jan Lambregts, head of Asia research at Rabobank International.