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Terrorist acts and your investments

Terror strikes have hit India quite a few times in different ways and with varying impacts. The impact of such strikes is felt on the value of various investments, especially on share prices, writes Arnav Pandya.

business Updated: Nov 28, 2008 23:38 IST
Arnav Pandya

Terror strikes have hit India quite a few times in different ways and with varying impacts. The impact of such strikes is felt on the value of various investments, especially on share prices.

To get a good overall picture, an investor needs to take a careful look at the entire situation and the manner in which this turns out. It is important to get a good overview of the expected impact that can be broken up into several parts.

Overall impact

Terror strikes like the one witnessed in Mumbai has a direct impact on market sentiments and leads to movement in markets. Often such strikes have an immediate negative impact because of worries of economic fallout.

At the same time there can also be a feeling of resistance to not bow to such situations and this can often lead to a sharp bounce back in prices, as there is some level of overall buying. The important point is not the short-term impact, which can go either ways, but the long-term impact, which for a country like India is not very high. This will be a reassuring sign for investors.

Sector impact

While the overall sentiment might return to normal in a short period of time there can be specific sector impact due to the terror strikes. For example the tourism industry can take a hit as tourists might tend to stay away for some time.

This will impact all the sectors associated with tourism, which include airlines, hotels, tour operators and even local entities. As long as such incidents are not repeated, even this impact wears out after some period of time and things start returning to normal. This kind of sector impact can be specific to each position and hence has to be watched carefully.

Company impact

There is also likely to be specific impact on companies that are directly affected by the terrorist strikes.

The impact is on account of two factors. One is the loss that has occurred because of the specific hit that has been taken. So in case of the five star hotels there will be a cost involved in the restoring the damage done. At the same time there is also the question of loss of potential and future business that takes place due to the event. This has to be estimated and this will result in the actual change witnessed in the share price of the company over a period of time.