The fast upward movement in the capital markets, which saw the Sensex touching 3-1/2 year high last week, was due for correction in the short term, but would continue to attract majority foreign institutional investors committed to emerging markets, credit rating agency Crisil said on Tuesday.
"A correction is overdue in the short term, primarily because of the sudden growth in valuations. There will be nervousness and profit booking at every upward move. A correction of values to the range of 5-7 per cent is expected," Abheek Barua, senior economist, Crisil told newspersons in Kolkata.
In the long term, however, the upward trend would sustain as the markets continue to attract the FIIs, who have acknowledged the positive fundamentals of Indian bourses.
Asked if turnaround in the United States markets would lead to outflow of FII funds, he said, "About 60 per cent of the FIIs funds could be dedicated to emerging markets and would remain. The rest 40 per cent could be global funds, who would move out."
The sustained robust foreign portfolio inflows, fuelled mainly by good monsoon and excellent corporate results, had been a major factor driving the BSE Sensex up to a new high.
The Sensex touched 3-1/2 year high at 5135 on the Bombay Stock Exchange during the last week though a heavy profit-booking trimmed a large part of the gains.