Correction warranted, but may not be sharp: UBS

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Manishi Raychaudhari of UBS mentions that the extent of the market fall in the past three days was a surprise although he was expecting a correction, partly due to the valuations, which were over-reached themselves and also due to the CRR hike by the RBI.

However, he does not expect this correction to be as sharp as was seen during the May-June fall. According to him, this correction would not exceed more than 10-15%.

He further adds that we are still in an environment of strong earnings' upgrade across sectors. Also, global cues have not been negative and a lot of money is still waiting in the sidelines to be invested in India both by domestic as well as foreign instititutional investors. Hence, he feels that the correction was warranted but is unlikely to be very deep.

Excerpts of CNBC-TV18's exclusive interview with Manishi Raychaudhari:

Q: How have you read this very sharp concentrated fall and what is your assessment of whether we are finding our feet or we need to slip some more?

A: The extent of the fall of about 1000 points came as a bit of surprise to us. Undoubtedly, we were expecting a correction partly because the valuations had over reached themselves, they were discounting most of the near-term positives and secondly the CRR hike by the RBI, which was little harsher than what we expected, that also came as a negative surprise to the market.

Having said this, I don't think this particular correction episode is likely to be as sharp as we had seen during the May-June period. At that point of time, we had seen 30% correction in the market. I am willing to bet that this episode will not be more than 10-15% at the most and there are few reasons for that.

Firstly, we are still in an environment of a strong earnings upgrade across most sectors. Secondly, this time around there are no global cues, we are not seeing EMs correcting, neither are we seeing global slowdown nor are we seeing concerns on global interest rates.

Thirdly, there is a lot of money waiting on the sidelines to be invested into the Indian markets, both domestic investors and foreign institutional investors. That is our prognosis for the market. Over the long term, we remain bullish and we had a target of 14,000 by the end of 2007 and the market was already there by the end of 2006. So the correction was warranted but it is unlikely to be very deep.

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