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'Global factors to hold key for next yr'

The US economic growth and crude oil prices are among the most critical factors that would affect the Indian stock market.

india Updated: Jun 30, 2006 12:06 IST

While warning about further downside risk that can pull the benchmark Sensex to near 6,000-point level, leading global investment bank Morgan Stanley said that global factors are likely to remain a key influence on India's equity returns over the next one year.

The US economic growth and inflation rates, crude oil prices and emerging market valuations are among the most critical factors that would affect the Indian stock market in the next 12 months, Morgan Stanley's Ridham Desai and Kuleen Tanna said in a latest report on the country's equity market.

Poor policy response and sustained loss of risk appetite are providing further downside risks to the Indian equity market, which might lead to the market levels almost halving from their peaks, or nearly 35 per cent down from the mid-June levels, the analysts said.

After peaking at 12,671.11 on May 11, the Bombay Stock Exchange's 30-share benchmark Sensex had dropped to below 9,000-point-mark recently and a halfway fall from the peak would bring down the barometer index to near 6,000-point level.

Huge sell-off by foreign institutional investors and correction across all the global equity and commodity markets have been termed as the major drivers behind the recent meltdown on the domestic bourses.

A revial in the global sentiments with positive implications for growth and the rating of Indian equities, however, might lead to a surge of nearly 35 per cent in the share prices, Morgan Stanley said.