Gruesome though it may sound, foreigners are treating the bloody Mumbai attack as a buying opportunity, not a tragedy that dents global business confidence. They remember that the terrorist attack on the U.S. on 9/11 was horrific but that this very horror made it an excellent time to buy equities, and they are following the same principle in India today.
Before Mumbai, foreign institutional investors had been pulling out of India on a massive scale. From the start of 2008, they pulled $13.5 billion out of Indian markets, sending the Bombay Sensex crashing from a peak of 21,000 to barely 9,000 today. Pessimists feared that the Mumbai attack would lead to further outflows. Surprise, surprise, dollars have flowed in instead.
Veteran economic analysts say that the attack may have a short‐term negative impact in some areas, notably tourism. But long‐term flows of foreign direct and portfolio investment are unlikely to be affected. The long‐term India story remains unchanged, since terrorism is part and parcel of that story, and the risks are familiar and well understood by foreign and Indian investors.
India has been subject to Islamic terrorist attacks for two decades, and major Indian cities witnessed a series of bomb blasts in 2008. The Mumbai attack was notable for providing reality television for 60 hours rather than for high casualties, and in showing that the business elite (including foreigners) were as vulnerable as ordinary folk. Only 174 were killed in Mumbai (including 26 foreigners), a small figure compared with over 50,000 killed in Kashmir over the last two decades. Indeed, 3,500 people die in Mumbai every year falling off over‐crowded trains. Every death is a tragedy, but the Mumbai attack was not exceptionally tragic in numbers.
Nor is Islamic terror the only security issue India faces. Sundry Maoist groups have been waging insurrection in several states, and Maoist incidents have been reported from 157 of India’s 600 districts. Many of these are in the central Indian jungle belt, which is rich in mineral ores. This has made it problematic to get some mining and steel projects off the ground.