Swiss banking major UBS has cut its year-end target for the Bombay Stock Exchange benchmark index Sensex by 9.5% to 19,000 points from its earlier projection of 21,000 points.
"We revise down our March 2012 Sensex and Nifty target to 19,000 (from 21,000 earlier) and 5,900 (from 6,500)," UBS India Market Strategy report said.
Terming FII outflow as one of the biggest concerns of the Indian stock market, UBS said: "...In the absence of severe FII outflows, Indian markets should find support at current levels. However, if we see significant FII outflows, we believe Nifty/Sensex can correct further by 15-20% based on our bear case scenario".
Inflow into Indian equities in 2010 was the highest among Asian markets and accounted for around 10% of the market capitalisation, which means any significant FII reversal would result into heavy "vulnerability", it said.
FII reversals tend to be modest and short-lived in India excluding the financial crisis period, UBS said, adding that "we believe current global macro environment is better than what it was during financial crisis and see bear case earnings growth for Nifty and Sensex as being 10%".
UBS said it is "overweight" on the auto sector, "underweight" on IT services.
This year so far, the Sensex has lost a massive 18.5%. It is down around 21% from November high of 21,108.64. Besides, the Indian equity market is also one of the worst performing among its global peers this year.
Recently, global brokerages such as CLSA and Morgan Stanley had also cut their year-end target for Sensex.
CLSA had cut its year-end Sensex target to 18,200 from the earlier 19,500, while, Morgan Stanley, reduced its Sensex target for 2011 by 15% to 18,850 from 22,750.
Market experts believe tough days are ahead for the Indian equity market because at a time when developed economies are barely growing despite stimulus, India cannot remain insulated from the whole picture.
Sensex has lost 3.42% since Standard & Poor's downgraded the US government's 'AAA' sovereign credit rating on August 5 -- a move which raised question about the financial health of the United States economy.
