The sub-prime issue is now causing a global sell-off as investors continue to dump risky assets amid growing fears about a global credit squeeze--the injection of liquidity by Central Banks, notwithstanding. Man Financial in its latest report says that the Yen has now strengthened to ¥ 115.26/ US$ 1 and could strengthen significantly further due to the vicious cycle as more carry trades get unwound on fears of Yen strengthening.

The recent Indo-US Nuclear deal has widened the rifts between the ruling UPA Govt and the Leftists. This could also lead to political uncertainty during which investor sentiment could be impacted.

Our Sensex EPS for FY08E is Rs 844 (+16.5%) and Rs 1,004 for FY09E (+19%). Earnings growth of the Sensex is expected to slow down from 32.6% in FY07E to 16.5% in FY08E and rise modestly to 19% in FY09E. Even the 19% growth in FY09 has a downside risk due to the lag impact of high interest rates and rupee appreciation. We believe that the 10-year bond yield of 8.0% to 8.2% could mark the peaking out of the current interest rate cycle. In such a scenario, the Sensex range works out between 12,250 to 15,959, which corresponds to a PER of 12.2X FY09E, the report states.