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Snakes to outsmart ladders on Dalal Street

business Updated: Apr 02, 2007 19:21 IST

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If the stock market can be taken as a game of snakes and ladders, the analysts are anticipating more encounters with snakes that would take it down to lower levels than with ladders to propel it to higher levels.

The new fiscal year has begun with a sharp plunge of over 600 points in the benchmark Sensex and the current market conditions offer lots of fodder for the snakes on the prowl.

Weak domestic outlook heralded by rising interest rates, rupee appreciation and sluggish global trends are just a few factors that could take the market further into the troughs, the analysts believe.

Besides, neither fundamentals nor the market technicals suggest that the correction is over, they added.

The market also faces several headwinds in form of a weaker domestic demand outlook, a relatively less docile political environment at home and uncertain prospects for the global risk appetite, the analysts warned.

While the Indian markets continue to remain highly correlated with the global trends, the global scenario appears mired with concerns like a possible slowdown in China as well as inflation and growth issues in the US.

According to Morgan Stanley, the global risk appetite might not be as strong as it was in 2006.

According to analysts at global equity research firm Morgan Stanley, a sense of complacency among the investors about the meltdowns in recent months could also add to the possibility of further downslide on the bourses.

"Investors seem complacent about the recent fall, having been burnt by their experience last year when they were caught being too bearish post the May 2006 fall," Morgan Stanley analysts Ridham Desai and Sheela Rathi wrote in a research note to their institutional clients.

While recent flows suggest that investors are not as bearish as they were in the weeks after May 2006 correction, unlike that aftermath, the market is today also dealing with prospects of a slowing domestic growth, the analysts said.

This is further juxtaposed with a less favourable political environment, with the upcoming assembly elections in Uttar Pradesh creating possibilities of a backlash on reforms, they added.