<b>Sunil Jain:</b> Grin and bear it

PERSPECTIVES

Tuesday’s credit policy, it is obvious, has hit market sentiment, but just how badly is the question. According to Morgan Stanley’s latest research on the Indian stock market, the market has already gone through two legs of a bear market over the past six months or so. The third leg, Morgan Stanley avers, will last anywhere between 26 to 50 weeks, though the fall in prices will slow down significantly, as a result of which the returns on the stock market in India relative to emerging markets could fall to below zero. Morgan Stanley also has an interesting graphic on the relationship between bond yields and the sensex. The result is intuitive — as bond yields rise, the sensex falls since a rise in interest rates hits profit margins and also makes fixed-income securities relatively more attractive. With Tuesday’s hike, yields on 10-year bonds rose to 9.3 per cent, from 7.8 per cent at the beginning of the year. It’s true that the result is not always as robust and several other factors (global growth and profit margins of companies, for instance) matter, but in the short run, the result in worth keeping in mind.