Expect a brief pause before the journey resumes: FIIs

Foreign institutional investors (FIIs) anticipate a correction in the short term for the markets even as the Sensex has scaled the psychologically important 12,000 mark today.

However, they are bullish about the long-term prospects and expect a secular bull run, which had begun in 2003, to continue in the long term.

CLSA, in a recent report, has fixed 40,000 as the long-term target for the Sensex without specifying a timeframe. However, it was "still expecting a further correction on a renewed pick-up in risk aversion towards global equities".

The report stated: "India remains Asia's highest beta stock market because it is the best growth story with the highest valuations."

Top stock picks by CLSA in India include Tata Motors and Bajaj Auto in automobiles, ACC (domestic cyclicals), BPCL (oil refiner), ICICI Bank (private bank) and SBI from among public sector banks.

Similarly, another leading FII, Citigroup, in a report, said higher lending rates, along with rising commodity prices, were key risks to the forecast of 22 per cent earnings growth for India in FY07.

"Tighter liquidity and higher rates will moderate credit expansion "� credit expansion growth in FY07 thus far continues at a scorching 30 per cent plus, similar to the previous couple of years. We expect higher rates and tighter liquidity to start biting and credit growth to slow down to around 20 per cent by the time the year is out," said analysts at Citigroup, in its recent report.

Citigroup expects growth moderation in housing and auto in the second half of the current financial year but says investment cycle is unlikely to be affected.

"Slower credit growth will have a moderating influence across the economy, most notably in the housing and auto sectors. Investment cycle upturn is unlikely to be affected owing to strong corporate balance sheets and expansion/ infrastructure needs," the report said.

The companies with high leverage and interest costs include the likes of Jet Airways, McDowell, Arvind Mills, Tata Teleservices, S Kumars, Aurobindo, Jindal Saw, Pantaloon, EIH, Aban Lloyd, among others.

JM Morgan Stanley, in a report released early this week, said it was increasing its position in the industrial sector and moving the position into cash. The FII removed Tata Motors from its model portfolio.