India's main stock index may fall to a 10-month low of around 13,000 points by end-2008, as the Reserve Bank of India may raise interest rates to check inflation due to record oil prices, Credit Suisse said on Monday.
"The market is still not pricing in the much lower earnings growth being forecast by corporates and banks," Nilesh Jasani, head of research at the Indian unit of the Swiss bank told reporters at a briefing.
Indian stocks fell as much as 2.5 percent on Monday on top of a 5.1 percent decline last week and has shaved off a quarter of its value so far in 2008 as foreigners sold $4.8 billion worth of stocks amid concerns of rising inflation and slowing growth.
They bought $17.4 billion of stocks in 2007, pushing up the main index by 47 percent. It was at 15,191 points on Monday.
Uncertainty ahead of national elections will also weigh on the minds of investors, Jasani said.
While the government expects the economy to grow by around 8.5 percent in 2007-08, many research houses expect Asia's third-biggest economy to expand at less than 8 percent as the impact of previous policy tightening starts to show.
Jasani expects the rupee to remain weak in the current year, pressured by a widening current account deficit and expects inflation at 9-9.5 percent by September.
The Indian rupee has fallen more than 8 percent in this year, hitting a 13-month low of 43.21 last month, forcing policymakers to ease offshore borrowing regulations for local firms and the RBI to intervene in the currency market.
"Every 1 percent depreciation in the rupee accounts for a 15 percent rise in the deficit bill, so we assume the government will want the currency to stop depreciating some time," he said.