Published November 28, 2008

India's business heart in crosshairs

Mumbai terror strike kills many, halts market trading as financial sector tots up costs

By CONRAD TAN
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(SINGAPORE) India's financial markets were shut yesterday for the first time in more than three years after brazen terrorist attacks killed over 100 people and hurt hundreds more in Mumbai, the business capital of India.

On fire: The Taj Mahal Palace hotel in Mumbai after the attack on Wednesday night by terrorists armed with bombs and rifles

Shares of big companies listed here with Indian operations slumped, dragging the Straits Times Index (STI) lower and defying a broad rally in stocks across most of Asia.

In Thailand, the baht weakened against other major currencies and stocks also fell after anti-government protesters forced the closure of Bangkok's second airport, cutting off all commercial flights to the country's capital.

But most regionwide financial market indicators, including indices tracking credit-default swap spreads - a measure of the risk of debt defaults by big companies or governments - showed a muted reaction to the worst terrorist atrocity in India since July 2006, when bombs on Mumbai trains killed more than 200 people and injured over 700 others.

Here, shares in SingTel, which owns significant equity stakes in the biggest Indian and Thai mobile phone companies, plunged 4.2 per cent yesterday, forcing the STI into a small loss of 0.04 per cent. SingTel said that it is closely monitoring developments in both countries.

DBS Group, which has six branches with some 450 staff in India, said that all employees at its Mumbai branch were safe and that operations at the branch were unaffected by the attacks. Its shares fell 1.4 per cent.

Most other equity indices in Asia rose, except in Thailand, where the main stock benchmark slid 1.4 per cent.

'For now, markets haven't really gone into a regionwide panic. If you look at the equity market action today, it does suggest most of the markets are trading on hope after China's rate cut and positive sentiment spilling over from Wall Street,' OCBC economist Selena Ling said. 'That said, if this continues, people are going to get worried about potential contagion effects,' she added.

Here, futures contracts based on India's Nifty Index stock benchmark finished 2.3 per cent lower, after plunging 4.9 per cent earlier in the day.

Late Wednesday night, terrorists armed with bombs and rifles stormed Mumbai's main railway station, hospitals and its biggest hotels - the Taj Mahal Palace and Trident-Oberoi - as well as a cafe popular with tourists.

Reports suggested that the terrorists had targeted foreigners, especially those holding American and British passports.

The Oberoi and Taj hotels are close to the financial district, which houses the offices of Merrill Lynch, Morgan Stanley and HSBC, Bloomberg reported.

One person BT spoke to here said that he knew colleagues who had been caught up in the attacks. 'It's a bit too close to home,' he said, declining to comment further.

One Singaporean Chinese was being held hostage, Foreign Affairs Ministry spokesman Jai Sohan told reporters here last night. 'We understand that she has not been harmed in any way.' He added that the ministry was offering help to the family of the hostage and was in close touch with the Indian authorities to secure her release.

Another dozen Singaporeans were still stranded in several hotels last night, although they were not being held hostage and were in contact with Singapore's consulate staff in Mumbai, Mr Sohan said. Many other people were also trapped in hotels in the vicinity of the attacks, Reuters reported, quoting an Indian official.

A group calling itself the Deccan Mujahideen - previously unknown - said that they were responsible for the attacks.

Analysts fear that the killings in Mumbai and the confrontation in Bangkok will hurt already fragile sentiment among investors worldwide, triggering a retreat from Indian and Thai investments. The Mumbai attacks 'will have a huge negative impact on the financial sector because they targeted not just foreigners but also the professional class', said Manu Bhaskaran, head of global economic research at US consulting firm Centennial, in Singapore.

'It shows up the weaknesses in the Indian domestic intelligence and police procedures and set-up. That sounds very critical but I'm afraid that's how investors will look at it.'

Still, the latest attacks won't derail India's growth, he said. 'This would be devastating for a small country; it is something that India will absorb. I'm not worried about the longer term.'

OCBC's Ms Ling said that the damage to Thailand would likely be more immediate than in India. 'If you have a non-functioning airport and the Thai economy not doing that well in the first place, with the tourism sector being curtailed, 2009 growth will be increasingly at risk.'