Mumbai Attacked, Markets Unaffected (Again)


Last Thursday, Mumbai was once again the victim of a brutal terrorist attack, with three Improvised Explosive Devices (IEDs) detonated within minutes of each other in crowded business districts of India’s commercial capital. The utter depravity of the terrorist masterminds can be gauged from the timing of the blasts; all were between 6:45 and 7 p.m., when the maximum number of people would be on their way home from work, ensuring that the blasts inflicted maximum damage. These attacks come two and a half years after the city was brought to a standstill in November 2008, when Pakistan-based terrorists took two hotels and the busiest railway station hostage for three days.

The commercial capital of India, and an emerging global financial hub, Mumbai has been subject to a disproportionately large number of terrorist attacks over the last two decades. However, its status as India’s leading investment destination and the poster child for a globalizing India somehow continues to remain unthreatened. Editorials and news channels suggest there is an intangible ‘Spirit of the Mumbaikar’ that keeps the city going. The reality is far less romantic. Simply put, commerce in Mumbai does not care about terrorist threats.

The performance of the Bombay Stock Exchange’s 30 share index, the ‘Sensex,’ best illustrates this immunity. The table below describes the performance of the Sensex on the first trading day after five major terror strikes. While the Sensex dipped in early morning trade, on none of the occasions did the index suffer large, sustained sell-offs. This is in stark contrast to the 9/11 attacks in New York, when America’s stock exchanges panicked.


Sensex Reaction to Attacks



Sensex Close on Attack Date (INR)

Sensex Close on Next Trading Day (INR)

% Change


13 blasts across Mumbai, including Stock Exchange





Car bombs in tourist, business areas





Serial train blasts





3 day gunmen attack





Coordinated IEDs




(Source: BSE Archives,

The cause of this resilience is a combination of factors. India’s equity markets are increasingly influenced by the actions of Foreign Institutional Investors, entities to whom the loss of 21 civilians is not enough to affect their estimates of discounted cash flows. At the end of the day, the markets reflect the potential and performance of India, not just Mumbai. As the economic spine of the country, Mumbai continues to hold that potential. Moreover, given the current uncertainty in more established markets, Indian assets will continue to be in demand.

We should consider the actual impact of a terrorist attack. While the emotional trauma is obvious, the quantifiable impact of a small scale attack is minimal. If a terrorist attack serves to contract business, the effect is marginal given the size of India’s population and the necessity that drives most people. Put plainly, Mumbai citizens go back to work the day after an attack because they have to. The performance of individual entities like Indian Hotels, the holding company of the Taj Mahal Hotel that was attacked in 2008, may suffer, but the overall impact is negligible. This leaves only the physical cost of the attack’s damage. Unless an attack is able to significantly erode physical value (as in the case of 9/11), there are not great negative externalities from this angle either.

The most important factor, however, is that a "terrorism risk" is already priced in to any investment decision. The overall negative effects of continued terrorist attacks are compensated for by greater required rates of return from Indian assets. Unless an attack alters a fundamental characteristic of the economy (such as the proportion of income that individuals save or consume), its short-term effects are already covered through a "terrorism risk" premium.  

These conclusions are significant. Some commentators have even suggested that this immunity is evidence that the ‘War on Terror’ is being won. Although such a conclusion seems premature to me, I am encouraged by the continued interest of investors in Mumbai. There are many hurdles to overcome before India’s economy can live up to its exalted billing, but its ‘bounce-back-ability’ is gladdening. 

Photo Credit.Prateek