At 15,515, the BSE Sensex may not have breached March 2008 lows but many large cap stocks have. What's significant about the fall today is that the market has crashed on volumes that are higher than average volumes seen over the last couple of weeks.

The breadth has been bad and important technical levels have been broken, especially the 4600 level for the Nifty which closed at 4586. Not surprisingly, mid-caps have taken it on the chin, falling by over 3 per cent.

The markets are only reflecting investors' concerns about the worsening macro-economic situation higher inflation and higher interest rates that could hurt growth and profits. The March 2008 quarter numbers from India Inc reveal that revenue growth is slowing down and that operating profit margins are clearly under pressure.

So given that there could be earnings downgrades, the market could remain expensive even as it falls. Even now, India is still expensive compared with other emerging markets :a Merrill Lynch report highlights that India is trading at over 17 times twelve months forward, way above Korea at 12 times or Taiwan at 13.4 times.

Not surprisingly, both in May and between January-May, India was the second-worst performing emerging market with FIIs pulling out close to $ 4 billion.

While FIIs have been net sellers this year, mutual funds (MFs) and insurance firms, who were big buyers earlier in the year, aren't doing so now. MFs were net sellers in March and April and in May, they bought negligible amounts.

That's probably because inflows into mutual funds are slowing down: they were down 91 per cent month on-month in April 2008, to their lowest level in six months.

Insurance firms too are seeing lower inflows of premiums. Retail investors are understandably jittery. It's not that the India story is over, it remains promising but things could get a little worse before they get better.

Succour at the margin

ONGC is the only gainer from the hike in auto-fuel and domestic LPG. Its share of the support to oil retailers will be lower, in percentage terms, in FY09.

So even though the shortfall with retailers will be higher at Rs 2.45 crore this year, ONGC's contribution, at around Rs 39,000 crore, will not be as high as was expected, before the prices of petroleum products were raised.

Because they sell petrol, diesel and LPG at less than cost, oil retailers incur shortfalls part of which is made good by ONGC.

The stock flared up by 5.3 per cent to Rs 887 on Wednesday, even as the market crashed by 450 points. It's possible ONGC's earnings for FY09 will be upgraded from the levels of Rs 120 estimated earlier.

Oil marketing firms, meanwhile, will be short by about Rs 20,000 crore this year compared with Rs 16,000 crore levels in FY 08, even after hike in retail auto-fuels and LPG prices.

While life will be easier for them than before, it will not boost earnings significantly. However, they could post better gross refining margins ( GRMs), of around $ 8 - 10 per barrel levels compared with $ 9 per barrel levels in the June 2007 quarter.

The IOC stock lost 3.6 per cent to Rs 418 and now trades at just four times estimated FY 09 earnings.

HPCL came off by 3 per cent to Rs 241 and trades at just under 5 times FY09 earnings. They may not be expensive but could lose if crude prices head higher.