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'Market crash provides scope for 12-15% earnings growth'
BS Reporter in Mumbai
 
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January 23, 2008

Morgan Stanley Managing Director Ridham Desai comments on the current market scenario and prospects that lie ahead for investors.

What is causing such massive correction in the Indian markets?

The Indian equity market has once again demonstrated its high beta characteristic in bear markets. The fundamental underpinning to this high beta status in bear markets is India's dependence on global financial markets to fund its macro -- more than three-fourths of the flows into India come from portfolio sources (which are linked to global financial market outcomes) -- quite the opposite of the emerging markets average.

More recently, the market has been driven by retail speculators and valuations have been rich. Here are some points to ponder:

What is the outlook for investors?

The outlook is pinned to global outcomes and we think India could underperform if the global financial markets continue to decline. The immediate technical support level seems to be around 15,700 on the Sensex, about 10 per cent lower than the current level.

We think investors should expect volatile market conditions and if the Sensex does test the gap at 15,700, it will not be far away from our fair value estimate of 14,864.

We recommend the narrow market over the broad market on a relative basis, given that large caps look better fundamentally as well as on the valuation front.

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