Tensions between India and long-time adversary Pakistan have risen since the attack, with India saying the gunmen had weeks of commando training in their neighbour and demanding fast action against those responsible. Investors watch nervously.

Fund manager Schroders said it remained underweight on India but was gradually increasing its position believing current prices were attractive after recent plunges. It was now roughly 2 percent underweight India in its $12 billion emerging portfolio from 4-5 percent underweight earlier in the year.

Outbreak of actual war between the two nuclear-armed neighbours would change his view on the market "completely and totally", he said -- but the impact would not be limited to India and Pakistan. Anything less would make little difference.

War Risk?

"The atrocities have not changed our underlying investment view," said Schroders head of global emerging market equities Allan Conway. "There will be tensions between India and Pakistan and there is a risk things could deteriorate very significantly -- (but) that is a possibility, not a probability."

The UK-India Business Council -- which promotes trade between the two countries and is funded by British government and industry -- says it has not seen significant cancellations on the business trips it organises to India.

British Business Secretary Peter Mandelson would lead a further trip to India in the New Year, it said -- adding that recent falls in the British pound currency also made it more likely Indian firms might buy up British businesses.

Before the attacks, the council said inquiries from firms about expansion in India had been rising sharply as Britain entered recession and businesses from architects to brand consultants hoped they could replace lost business.

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