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    TERRORISM & IMPACT ON INDIAN STOCK PRICES

    Sources:

    http://www.indianmba.com/Faculty_Column/FC1102/fc1102.html

    Date Accessed:

    March 28th 2011

    Impact of Terror Attacks on Indian Stock PricesBy

    Poonam

    Sr. Program CoordinatorAll India Professional & Management Association

    Abstract:

    Stock market is considered as the most efficient in allocating scarce capital to its highest value userHowever stock market is more volatile than any other market. Volatility is considered as a very impindicator of stock market development because volatility affects investment, corporate financing anfinancial stability in the economy.

    Fluctuations in the stock prices are due to change in investor's attitude, perception, information

    (Rumors), economic conditions, political instability, corporate decisions. This paper tests the impacvarious terror attacks on the prices of the share of particular industry. Terror attacks have its impacthe psychology of investors, consumption power, political environment, economic wealth. These attsometimes hinder the relations and deals from foreign investors affecting the stock market.

    Introduction

    Terrorism has given up as global threat and terrorists have free flow of information, communicationInformation Technology and so forth. Threats from terrorist groups have grown alarmingly and posegreater challenge to nations. Terrorists conduct their activities with the aim of destruction. The fearterrorism is looming large in our daily life. There are innumerable incidents of such fear and insecur

    Terrorists attacks has its impact globally be it tourism, Gross domestic product, medical industry,productivity, aviation industry, stock market etc. Terrorism creates feeling of hatredness, frustratiopanic in the society with the main objective of destruction in the opposition. Paradigm of Terrorism seen a major change with terrorists remaining invisible and exhibiting cross nation spread using Intas a main source of communication.

    The need of an hour is to fight against terrorism. It cannot be wiped out by few hands or by force oarms. It has to be combated by combination of government governance, stringent laws, quick and fsystem of justice that delivers harsh punishments to the victims. National strategy needs to spell ou

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    threat and how It should be dealt at all levels.

    The attacks also changed the way we think about terrorism and moved the topic to the front burneracademic and public attention. Various studies have been done to measure the magnitude of the efan unanticipated event My study examines the affect of one of the unanticipated event i.e. attack inMumbai on November 26, 2008 on the Indian Stock market.

    Various studies have been done before to measure the impact of unanticipated event on the financimarket.

    (1) Impact of September 11 attacks on US and Indian Stock market which concluded that

    a) There was huge Impact of Terror attack on WTE on various Industries.b) There has been an Initial downslide in both American and Indian markets after the event.

    (2) Terrorism and stock market which concluded that-

    a) Human Capital loss such as kidnappings of Co. Executives has larger impact on Stock Prices rath

    than Bombings on buildings.b) There is need of Terrorism Risk Insurance.

    The study has been done to look upon that whether volatility in the stock prices is due to the terrorattacks on Mumbai.

    History of Terrorism:

    The word "Terrorism" has been derived from Latin word "Terrere" which means "To fight". This worfirst used in Rome in a state of emergency in response to the approach of Warriors of the Cimbri tri105B.C. Terror is used as a means of coercion. In simple words, Terror means all those acts which done in order to create fear in the minds of the people.

    Word "Terrorism" in modern times refers to the killing of innocent people by a private group in a wacreate feeling of hatredness and panic among the common people of the nation. It is a word withnegative connotations applied to one's enemies which are preferred to be ignored. "Terrorism" creaphysical and psychological destruction. Common crowded places are the targets of these mindlessbrutalities- their ability to strike anywhere and at any time. Year-to year changes in the gross nuof attacks across the globe tells about the effectiveness of preventing these incidents and hence redthe capacity of terrorists to advance their agenda through violence against the innocent.

    Changing Face of Terrorism:

    Terrorists groups are also equipped with latest technologies which are used by them for the attackstake the example of attack on "TWIN TOWERS" we can recall that aero planes were used by the tergroup. No one could even imagine that such techniques would been ever used in so powerful countUSA.

    Taking another example of attack in MUMBAI on 26th November ships, Global Position Service data wireless satellites were used for the attack on the luxurious hotels. Even the materials like Guns, Riexplosive material used were of the latest technology.

    Recently came in NEWS that Osama Bin Laden followers have prepared capsules which contains poi

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    as to kill the Americans.(elaborate that latest technologies are being used in the terror attacks)

    Impact of Terrorism on Global Economy:

    If we talk about the impact of Terrorism on the global economy, we all can recall how the attack on

    "TWIN TOWERS" affected not only the US economy but the economies of various other nations. Terattacks from one country on the another country leads to the feelings of hatredness, revenge etc. leits impact on the business and relationships between the two nations. These attacks not only declineconomic growth of the nation which has been attacked rather the countries associated with it also

    US market is the hub of business for various nations like India, China etc. We saw how the attacks "TWIN TOWERS" slowed down the business of theses nations as most of the business of these natiocomes from US market. Economic impact includes cost of property, immediate affect on productivitGross domestic product, defense, security spending human cost etc. which is uncountable. The impcan also be observed on the financial markets globally.

    We can recall how the attack on "TWIN TOWERS" increased the cost of Information Technology sec

    almost whole of the data was lost. It took 10-15 days to recover that data slowing down the busineround the world.

    The terror attacks also has impact on global supply chains as it becomes costly in terms of time andformalities at ports and land borders. t also increases the cost of nation attacked in form of securitypolitical destabilization, public outrage and radicalization among their population.

    Impact of Terrorism on Indian Economy:

    A terror attack on India is not a new story. India has been continuously attacked in last year(2008)count a few cannaught Place(Delhi), Mehrauli(Gurgaon) , Gaffar market(Karol Bagh, Delhi), Varan(Uttar Pradesh). The places chosen by the attackers were the most crowded places so as to kill the

    maximum people and create panic in the society. But Mumbai attack on November 26,2008 has shothe Indian economy. Attack on five star hotels-Taj, Oberoi and Nariman House has raised a Questiosecurity for the elite visitors. The impact of Mumbai attack although will not a long term but definiteaffect short term business of the country. These attacks has left its footprints especially on threeindustries-tourism, hospitality and medical. It has also increased the cost of security especially on laand sea borders. Big and reputed Companies of India has also demanding for "Z" security. Not onlyCompanies rather say the citizens now are also seeking for "Z"security from the government. Tourisector has come to stake- be it International or domestic. Clients have cancelled their tours by 25-3because of security reasons which has directly hit the Aviation and Hotel industry.

    These attacks will affect India not only domestically rather globally as most of its business comes froutside India. The target attack on foreigners will have a incalculable impact on Investment climatewell affecting the financial market of India.

    Impact of Terrorism on Tourism Industry in India:

    Viewing India has "Incredible India" now looks for its gleam. Terror attacks continuously in last yea(2008) have come as a whammy for India's Tourism and Hospitality industry.

    We can see now that the most famous tourists places in India are having lonely roads with very fewtourists all round .Goa Tourism has lost almost half of its tourists. If we talk in figures-we can comp

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    that there were 25 lacstourists(2007-08) whereas only 11 lacs (2008-09) submitted a report by Hoand Tour operators. Goa attracted large crowds despite repeated security threats and warning of BaBombings. But this time, situation is worst.

    If we step into the high tourist season in India(Nov-March) there was already a dip of 15% becauserecession but IATO (Indian Association of Tour operators) released a news that there will be anothe

    of 10% because of the terror attacks. Travel advisories have put a warning of a high terrorist threathroughout India and especially the attacks on the luxurious hotels have added to the negative imp.Hotel Industry is viewing 18% dip in revenue .Hospitality industry has been hit harder with a dip ofin Business since the attacks. Even the domestic tourism has slowed down .Smaller cities like Chanand Punjab are confronting 20-30% cancellations.

    Even the aviation industry are in for a rough ride ahead with cancellations of trips by overseas visitTourism industry brought 12000 crores to the government but this year it is expected to be a drop to 25% .Drop in the tourists will take away a good chunk of seasonal income .Situation is grim for tindustries mentioned above which will have its impact on gross domestic product of our country.Unfortunately, India does not have politicians like Rudy Giuliani, Spunky Mayor of New York who rathe city after an attack on "TWIN TOWERS".

    Terrorism and Stock Market:

    It has viewed that financial markets are directly or indirectly the victims of Terrorist attacks .It has found that attacks in countries which are wealthier and more democratic are associated with largernegative share price reactions. Also, human capital loss such as kidnappings of company executivesassociated with larger negative stock reactions than physical loss such as bombings on buildings. Oreason that the country expects to observe a reaction in the stock price of affected firm is becauseinvestors considers tangible and intangible losses as well as increased cost of doing business in newterrorism aware environment. It also leads to a decision such as when to reopen the market taking consideration the factors like safety of personnel returning to work and viability of infrastructure ancommunication in systems. If we take the example of terror attacks of 9/11, it undermined the stabthe US and international financial system. The aftermath of the attacks was that financial markets w

    not only confronted with, major activity disruptions caused by massive damage to property andcommunication systems but also with soaring levels of uncertainty and market volatility .Impact of attack is visible on the stocks of various industries of the country which has been attacked. Also, thinvestors confidence level is deteriorated beyond the national boundaries because of contagion effe

    It can be concluded that when the return deviation is large and statically significant, the market sawevents as important.

    Impact of Terror attack in Mumbai and Stock Prices:

    This year has been the worst time for India's financial hub. Analysts feel that the fear will continue overshadow events for the long time. There would be incalculable impact on investors climates, tou

    and hospitality industries. The stock markets bellwether Index, Sensex almost down after a day, a terror incident in the country took place. Due to attack, financial capital of India has been hit by 40crores.

    Market reopened for trading on Nov 27, and Sensex opened at 1.5% or 137 points down before regsome of its customary defiance to terror and close 0.7%higher. Overseas investors have pulled outrecord $13.5 Billions from Indian Stocks in 2008 as of November 25 causing Benchmark BSE sensitIndex, to slump 56%.Taj Mahal Hotel saw a sharp dip of nearly 17% in share price to Rs. 40.20 maa new 52 week low. Decline was accompanied by an abnormal rise in volumes. East India Hotels, af

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    opening weakly, share price dipped to a low of Rs.83 before recovery to close at Rs. 97.75. Volumeshare did not show any abnormal variation on BSE. Jet Airways was down as Rs. 129 against earlierclosing of Rs. 138. Kingfisher airlines came down to Rs. 27.50.

    Particularly 55% drop Indian equity Indexes, major mutual fund managers like Mark Mobius of TemAsset management and DevanKaloo of Aberdeen Asset Managers have been insisting that India

    democratic traditions are strong enough to withstand terrorism. Periodic acts of terrorism will have limited and temporary impact on Indian corporate spectrum. There is only temporary impact on Buconfidence.

    It can be conclude that because of globalization, the whole world is shrinking and India is still goingan important player in global economy.

    Conclusion:

    Unanticipated events like Terror attacks alone do not impact the stock prices of the securities.

    References:

    Source of Data:

    Newspapers: Economic Times

    Magazines: India Today, Business World, Business India

    ICFAI Books : Global cooperation in combating Terrorism.

    Websites: Yahoofinance.com, nseindia.com, economictimes.com, Indiatoday.com, Indianmba.com,Indiantoday.com, indiatoday.in/war