Indian shares close flat, market subdued by terrorist attack

The market barometer rose 0.73 percent or 66 points to close at 9092.72 as the standoff between the terrorists and the Indian security forces dragged on to the third day.

The 30-share benchmark index remained closed yesterday after several unidentified heavily armed terrorists attacked upscale hotels, restaurant, railway terminus, movie hall and a Jewish center in Mumbai on late Wednesday night. The resulting battle between the security forces and the terrorists have left at least 150 dead and over 400 injured. Flush out and rescue operations are still being carried out.

The prime index opened lower at 8889.18 and after a choppy trading session during which it touched a high of 9157.62, the Sensex posted its highest close this week.

Despite Friday's gain, however, the Sensex is still down about 58 percent in 2008, making it one of the worst performing markets in Asia.

Sixteen components gained today, with tech stocks like Tata Consultancy Services (up 5.89 percent), Infosys Technologies (up 4.49 percent), Satyam Computer Services (up 2.60 percent) and Wipro (up 0.95 percent) outperforming the market as the

domestic currency weakened against the US dollar.

Auto stocks advanced led by Mahindra & Mahindra and Maruti Suzuki, which climbed 4.47 percent and 0.67 percent respectively.

Among metal stocks, aluminium majors Sterlite Industries (up 2.58 percent) and Hindalco Industries (up 0.95 percent) posted gains.

Financial stocks Housing Development Finance Corporation and HDFC Bank advanced 3.34 percent and 1.46 percent respectively.

Other major gainers were BHEL (up 4.78 percent), Bharti Airtel (up 2.50 percent) and Tata Power (up 2.18 percent).

Reliance Infrastructure (down 3.26 percent), Larsen & Toubro (down 3.14 percent) and Grasim Industries (down 3.03 percent) led the decline.

Realty stocks such as DLF (down 0.18 percent), and Oil & Gas stocks such as ONGC (down 0.72 percent) and Reliance Industries (down 0.49 percent) closed in the red.

Other major losers were NTPC (down 2.86 percent), Tata Steel (down 2.55 percent), Tata Motors (down 2.43 percent) and Ranbaxy Laboratories (down 2.06 percent).

The BSE Midcap index closed up 0.29 percent at 2885.76 while the Smallcap index closed down 0.31 percent at 3304.61.

Despite the gain in the Sensex, the overall market mood was subdued as 1114 shares declined, 915 shares advanced and 64 shares closed unchanged.

Elsewhere, the broader 50-share S&P CNX Nifty index of the National Stock Exchange (NSE) closed 0.10 percent or 2.85 percent up at 2755.10.

According to market analysts, the flat-to-positive close could be attributed to lower inflation rate, which raised hopes of cut in key interest rates. India's wholesale price index (WPI)-based inflation rate fell to 8.84 percent in the 12 months to November 15, from previous week's figure of 8.90 percent, government data showed on Thursday, indicating that inflation is stabilizing.

Moreover, news that India's economy grew at a better-than-expected 7.6 percent in the September quarter from a year earlier also helped lift market confidence despite the ongoing terrorist attacks in Mumbai weighing on investors' sentiments.

"The terror attack on Mumbai will have a limited impact on the markets next week. It didn't have an impact on prices but investor sentiment was down. At current levels we are positive on markets," said Siddharth Bhamre, fund manager at Angel Broking.

According to Bhamre, in the past, Indian stocks have fallen in the immediate aftermath of other recent terrorist attacks such as the train bombings which killed around 200 people in Bombay in 2006. However, they have usually recovered quickly.

Agrees Ashish Goyal, chief investment officer at Prudential Asset Management in Singapore. "In the near term this (terrorist attack) highlights the risk of investing in markets which have instability of some form or the other," Goyal said.

But the long-term picture for India changes only if the latest attack hurts business, slows the economy and scares off foreign firms, he said.

"It could raise the cost of security, it could raise the effectual cost of doing business, and at the margin that's not positive, but doesn't fundamentally alter the investment view or the perceived risk of investing in India," he said.

"This (terrorist attack) only adds to the prevailing negative sentiments, but it is to the credit of Indian investors that every terror attack in the past has only improved sentiments and markets are all about sentiments," said Jagannadham Thunuguntla, director of India's fourth largest share brokerage house, the Delhi-based SMC Group.

"India is a huge and resilient country and these things are part and parcel of life...life will go on," added Naresh Pachisia, managing director of SKP Securities Ltd.

However, some analysts disagree.

"The timing of the attacks, which comes as the central bank struggles to defend a weakening rupee and stabilize credit markets, may hurt more than previous attacks," wrote Nikhilesh Bhattacharyya, an associate economist at Moody's Economy.com.

"This means that capital outflows will have a greater impact than they did in the past, though history suggests that any reaction to attacks in Mumbai will only be temporary," he said.

"We don't think there is any immediate impact on the Indian economy, although longer term, it will get that much harder to attract and retain foreign capital, at the margin," said Daniel Chui, Head of Investor Communications at JF Asset Management.

"Sentiment in India, particularly Mumbai, will be dented even more," he said from Hong Kong.

Meanwhile, Industry and Commerce Minister Kamal Nath said on Thursday that he was confident the deadly attacks would not slow down investment.

"This (terrorist attack) does not have an economic component," he said.

On Friday, Finance Minister P. Chidambaram said the attacks in Mumbai will have a negative impact on investor sentiment in the short term but Indian markets are capable of withstanding the effects.

India is and will continue to be an attractive investment destination, the finance minister said, adding that the markets are driven more by the global economic meltdown and not as much as by the attacks.

Elsewhere, Asian markets closed stronger on hopes that the aggressive cut in key interest rates in China will spur consumer spending.

Japan's Nikkei 225 rose 1.66 percent to 8512.27; Hong Kong's Hang Seng climbed 2.48 percent to 13,888.24; Taiwan's Taiex advanced 0.15 percent to 4460.49; South Korea's Kospi moved up 1.18 percent to 1076.07; Indonesia's Jakarta Composite surged 3.28 percent to 1241.54; and Singapore's Straits Times ended up 1.29 percent at 1732.57.

However, bucking the trend, China's Shanghai Composite declined 2.44 percent to 1871.16; and Malaysia's Kuala Lumpur Composite fell 0.44 percent to 866.14.