Sensex to stabilize at 5000-5500: NCAER

By agencies   |   Tuesday, 26 April 2005, 07:00 Hrs
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NEW DELHI:The correction in the BSE Sensex is likely to continue, with the index stabilizing at about 5000-5500 points by the middle of this year, the National Council of Applied Economic Research today predicted.

The BSE Sensex touched an all-time high of 6,954.86 in the intra-day trades on March 9, but then started losing its momentum.

The economic think-tank said the correction that had been taking place since March 2005 did not appear to be a result of over-valuation, but of developments in the domestic economic environment relative to competing markets.

''Therefore, there is reason to believe that expectations about corporate performance are those of relative sluggishness, requiring further correction,'' it said in Macrotrack.

Along with this correction, the involvement of FIIs in Indian bourses was also likely to decrease in the coming months, according to NCAER. But that is more due to the anticipated appreciation of the U.S. dollar that could lessen investment by foreign institutional investors (FIIs) in emerging markets in general.

The Council said the main driving force behind FII investment was the returns in competing emerging markets. According to Morgan Stanley’s Emerging Markets Standard Annualized Historical Returns, (Gross), returns from India for a year were 14 percent as against 22 percent for three years.

''This is still much less than several other emerging countries such as Argentina, Brazil, Chile, Colombia, Indonesia, Pakistan, and Sri Lanka. Clearly, much more reform is needed,'' NCAER said.

It said during the past 12 months, the composite indices of emerging markets in Asia, Latin America and Europe had been moving in tandem but the growth of the Indian equity market was recorded as one of the highest.

''Thus, expectations are high on India and, therefore, the risks of reversal are also high,'' it added.

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