Mumbai: Shankar Sharma, vice-chairman and joint managing director, First Global Stockbroking Pvt. Ltd, does not buy the theory that emerging markets would outperform the US in the coming months. He said in an interview that these markets are more volatile, and may lag US markets going forward.

Looking ahead: First Global VC and joint MD Shankar Sharma. Abhijit Bhatlekar/Mint

How do you view the Sensex’s performance? Is it the start of a deeper cut, or will it be another of those shallow cuts we have seen over the last three-four months?

For all the talk of the US lagging and emerging markets doing very well and thereby outperforming the US equities, if you look at the relative chart of the US index represented by the S&P (Standard and Poor’s) compared to the Morgan Stanley Capital International (MSCI) Emerging Market index, or for that matter our own proprietary index, they have been pretty flat.

What that is telling you is that maybe the emerging market story was not as robust as what at least the newspaper headlines were making them out to be. And it was largely dependent on the huge stimulus package that China had unleashed, which had led to large amounts of cheap credit flooding the markets, reinflating the prices of commodities, thereby making the other commodity producers look good.

...In India, if you see the move post election was pretty much to cover the big part of the gain in a matter of three-four trading sessions. After that, it was basically a 10-12% (move), which is 15,200; Sensex going to maybe 17,000-17,300 (and) falling to 16,000-15,500—in that kind of a range for the last six months.

Within that, what outperformed were the IT (information technology) pack, the pharmaceutical pack and to some extent, the autos and metals also did well.

So basically, three-four groups drove the last 10% of this market’s rally. It was not really broad. Realty didn’t do anything at all, infrastructure didn’t do anything at all.

As it appears in any market downturn, the high-beta (more volatile) end will always fall more and emerging markets typically are the more high-beta end. So you can put together circumstantially the evidence that emerging markets will be in for a relatively more rough weather than US equities for the next couple of months.

There is a growing consensus that the first half of 2010 will be quite ugly, especially for emerging markets, and it is only in the second half that one can expect any kind of reasonable returns.

I expect the first half to be relatively trickier. Trickier in the sense that you will probably see a sell-off or cut...but maybe not as bad as what (you) saw in early 2009. We are not going to test the lows but definitely at 12,000-12,500 on the Sensex in the first half, followed by some measure of recovery in the second half, which will take us back to where we started the year, which is maybe 17,000-17,500.

I don’t think it (the market) is going to give up a nine-month-long rally that easily... I have seen markets do very badly prior to the budget. But post Budget, as always, I do expect the markets to have a sharp sell-off.

How are you approaching this pre-Budget run for the market?

It just started running. So we will have to wait for a breather. Markets will probably come back post the credit policy. Then we will see, but my sense is that we will not like absolutely have a market where the bottom falls out just yet. The government will also probably necessarily have to come out with a few announcements even pre-Budget because it is going to need a lot of confidence in the markets to sell all the stocks it has lined up.

I do think you are looking definitely at a scenario of 25% down from the 17,000 levels.