But as we approach that particular day, there should be more conviction that’s pretty much it for now. Beyond that, it’s very much a wait and see approach. One just has to be quick on their feet to see what the incoming numbers are. If our expectations are anything to go by, inflation after marking time is slightly above 7% for the next couple of months. It should begin to come off and that would still be above RBI’s 5% guidance. There is no reason why they need to get back to that band or guidance within a span of 2-3 months.

Q: What is your feeling, do you think the market will approach it saying it is a done deal and we can move on from here or do you think the high inflation, high interest rate scenario will continue to be a lingering concern and peg the markets down?

Mowat: I think it will continue to be a lingering concern. I am not sure if it is going to take the markets down. It is more likely just to limit the upside.

Q: So, do you expect any kind of knee-jerk reaction at all or do you think the market will reserve its judgment till April 29?

Mowat: The trend is for a tightening in monetary policy and we saw that with the CRR hike. We do have relatively high inflation in India. We have also got plenty of demand within the Indian economy particularly if you look at investment spending, which is on a structural uptick. People have decided to build these factories, roads, power plants, ports et cetera and those projects are going ahead. So, they do have an inflationary influence and you add to that relatively tight labour markets and food prices rising, then I think a central bank should be cautious in ensuring that inflation remains under control.

Last year we saw the central bank very successfully using a stronger currency in order to bring down headline inflation. There appears to be a little bit less flexibility to do that in so far as global capital markets are less stable, it is harder to raise external commercial borrowing if not almost impossible at current spreads and therefore you've got less capital inflows that could help push the rupee higher.

I don't want to sound too bearish about this, the central bank reserves is some USD 300 billion. So, I don't see a threat to the rupee depreciating. But to see the same sort of strength that we saw in 2007, looks less likely.

Q: What's your call? Do you think it will be a difficult track for equity markets over the next three-six months or do you think the markets can surprise with outperformance?

Mowat: The technical position in equity markets is looking very good. We saw a low for the S&P on the 10th of March. We have been rising consistently from those low points despite bad earnings and bad economic data. But that's what one should expect capital markets to do. They are meant to be leading indicators and one will tend to see the bottom in a market some 3-5 months ahead of the end of the recession and in our view, the US economy will be expanding once more in the third quarter as these tax rebate checks are received by the consumer in the United States and so we should be expecting markets to move higher. We had some bad results in terms of the absolute results from the financial services sector in the US but most stocks have tracked higher on their announcements.

So I think there is a lot of pessimism built into markets, which puts us in a good technical position and so we are looking for economic cyclical stocks to lead us higher, financials to lead us higher and India will benefit from this broad move in markets. For the emerging markets, it is important to focus on domestic economies and domestic policy decisions and investors have some anxiety here.

Clearly we have seen headline inflation move higher across many emerging economies and what we are seeing is various policy responses. Some of these involve price control, increase in subsidies, others using monetary policy and then there might also be a combination of stronger currencies and people are nervous about the former in so far as fiscal deficits arising and also this market distortion will eventually be have to be dealt with and the irony of price controls and export bans in the food industry might discourage the production of food domestically and prolong the problem as oppose to solving the problem.

Q: What is your call given about global markets? Do you think global equity markets have bottomed out for this year?

Mowat: Absolutely. I think you should be adding risk exposure, you should be buying equities. I would be buying equities with more of a global growth exposure as opposed to purely investing in domestic demand equities, which have been a very good trade for the last almost two years. So, we are going to see a bit of rotation in markets and markets moving higher as we begin to discount a recovery in the US economy into the third quarter.