THE Director of UBS Investment Research, Mr Manishi Raychaudhuri, believes that there is not much upside for broader markets in the near-term.

According to him, UBS maintains its 2005 year-end Sensex target of 7300 and its 2006 year-end target of 8700.

The following are the excerpts from CNBC-TV18's exclusive interview with Mr Raychaudhuri:

We are back to the 8600 levels and your December 2006 target is 8700. So you are not expecting any great out performance from here?

That is right. As you have pointed out, we believe that over the short-term, maybe over the next 6-9 months, the upside to the broader market may be limited, and so our target for December 2006, which stays at 8700, also indicates. Having said that, there are some variables like the oil prices which have eased off slightly and that was one of our major concerns, but we believe that valuations, particularly on the broader market still remain on the higher side.

Specially if you strip out the non-cyclical sectors or rather the cyclical sectors and just look at the non-cyclical valuations, then you will find that 15-16 times one year forward multiple would translate into a higher PE of about 19-20 times which appears slightly stretched.

I was travelling all across the world in October and we had an investor conference in November. The feedback from such investors suggests that over a longer term time frame, may be 5-7 years, India still remains attractive and even an investment at this point would possibly return about 15 per cent compounded annual growth rate in line with long-term corporate earnings growth. But over a shorter-term timeframe, may be over the next 6-12 months, returns may be limited.

You have maintained your year-end target on the Sensex but have you also had cause to revise how much this market can slip given the way it pulled back from the 7700-7800 levels?

That is a very difficult call to take in the short term, but we do have a fair value estimate of about 7300 for December 05. Having said that, we are just one month away from that and possibly no one really invests with a one-month time frame in mind. So possibly the one year target is more relevant at this point of time. The market can trade at above fair values for a long time during the period when the liquidity is strong, and that is exactly the case with India today.

If you look at the proportion of FII flows into India, they have increased from an earlier level as a proportion of Asian inflows. In early 2000, they were about 10-15 per cent and now they have secularly risen to about 25-30 per cent. The feedback from our investors also seems to indicate that India being the highest growth market, these inflows are unlikely to slow down notwithstanding the small hiccups like the ones we faced in October.

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