Q: From an equity market perspective, what does it mean? Now that the credit policy is out of the way, do you see the uptrend which started at 15,000 continuing or you think we are closer to the higher end of the band?

Kela: As we spoke last time, there is a lot of skepticism and nervousness; there is one observation which I am making, that this rally which started from 14,500 to 15,000, most of it is lead by short coverings. So the names that got battered the most, and where we are seeing most of the shorts come very aggressively, they are the names which are essentially coming off significantly. Fundamentally speaking, there is only one thing which really started to worry us - oil is at USD 120/bbl, you are going to have something like Rs 150,000 crore of deficit only on account of oil, if oil remains above USD 100/bbl. So this gives us a belief that we might be in a range wherein I am reasonable that fundamentals should protect what we saw at 14,500 to 15,000, but on the upper hand, we might face a lot of resistance because of these fundamental factors.

Q: How did you read the policy because while there was relief in the bond and the stock markets, some global analysts told us that the celebrations might be a bit premature because the CRR hike will actually materially impact banks quite a bit more than the repo rate would have?

Ekambaram: The CRR hike will suck out about Rs 9,000 crore from the system. The system currently has about Rs 20,000-25,000 crore of liquidity. So, I think while it will keep the liquidity tight, it is not likely to impact the rates. I think the way I read what the central bank has done is that they would use liquidity as a tool for inflation management rather than interest rates because inflation is really coming from supply side factors and they are not going to disappear overnight. It is going to take some time for commodity prices to cool off, for supplies as far as crude is going to come into the market and hence just to use interest rates as a tool for monetary management when there is a large supply side issue might not be solving the problem. Hence use liquidity to keep the interest rate firm. But this is not likely to increase the interest rates.

Q: We have had two bouts of CRR hikes already, do you think we have seen the last of it or do you think CRR will be the chosen instrument even going forward? If the CRR continues to get hiked, do you think it is just a matter of time before rates also start to harden?

Ekambaram: Possibly. CRR is being used because there is liquidity in the system and we have seen liquidity coming through various means, we have seen the RBI buying dollars, releasing rupees into the system, you have actually seen some flows happening. So, as long as there is excess liquidity sloshing in the system, you are likely to see this, between MSS and CRR being used as a tool to keep liquidity under check. So, I think whatever you have seen so far this seems to be the chosen tool for managing the interest rate environment rather than rocking the boat by increasing prices, because just increase in prices is not going to cool off inflation.

Remember you have the trade-off between inflation and growth. We are already talking about growth at closer to 8% rather than the 9% or thereabouts that we saw last year. Hence there is a trade-off between inflation and growth and that is a delicate balance to walk.

Q: What do you do with the banks, in the light of this tightening through the CRR? As investor, how do you position your self in the banking space?

Kela: In today’s world there is so much fluctuation in individual companies, so we are going stock by stock. A lot of pessimism is priced into a lot of banks, so we would be buyers there and gradually we would like to see that over the next 3-4 months. Banks stocks will become quite attractive from an investment perspective. But as I said we are not chasing these companies, we are buyers at a particular price because of the pessimism. Let's just understand what is the impact of all these on the real earnings - if you take 50 bps plus 25 bps you have a 75 basis of CRR hike, and the banks earn 0% on that. The opportunity cost on the banks is something like 10%, which they have advanced all this, so the banking industry as a whole will stand to loose Rs, 2,700 crore or Rs 3,000 crore only on account of the CRR. Viz, that, if you have the fluctuations which we had from the banking stocks, we are clearly looking at investing whenever the fluctuations come to our buying range.

Q: You think we have a bottom in place at 14,500-15,000, but what is the top end of the range where we may run to resistances given current fundamentals?

Kela: I would say, may be 18,500-19,000 should be the top-end given the set of challenges that are ahead of us. However the longer-term story continues to be good. We are evergreen bullish on India. We still believe in the 8% growth rate. So I would say that this is consolidation times for the next couple of months but 2009-10 should be a very good for earnings.

Q: The other sector, which went up today, was IT on the back of the STPI extension. You have seen the newsflow on IT - the guidance, the earnings and the STPI extension. As a fund house are you overweight on that sector or cautious?

Kela: We are equal weight, whichever fund in a diversified fund category we have no overweight positions neither a significant underweight position. We have been more or less equal to the index.

Q: What have you made of the earnings so far? Have you had more positive surprises or more negative surprises, how are you feeling after we have done three-fourth of earnings season?

Kela: The one particular factor, which stood out in earnings, is that there are hardly a few companies that have beaten street expectations big time. There have been definitely a lot of disappointments in companies wherever one saw that there is an either one time hit because of some provisioning or some policy changes unlike the last few quarters wherein quarter after quarter a lot of companies beat market expectations. We don’t see that changing at least for the next two quarters, that’s why I am saying that we might be in a rangebound market given the macro challenges and the lack of visibility for an earning upside on the upside.

Q: January through March, it almost looked like a bear market the way stock prices were moving. The way progressively we were seeking lower and lower price levels. Do you think that phase of the market has arrested for this year?

Kela: We never believed that we are in a bear market. We have been very clear that this is a correction in a bull market. It may last 6-8 months. In Japan the correction in the bull market lasted 19 months in 1973 to 1974 and the prices corrected as much as 40%. One has these kinds of corrections in a bull market and we are just in that one phase. So till the time we are below 6,400 in Nifty, we are still in a range where we are consolidating.

Q: You think this consolidation will last another 3-4 months, just your sense of where we can start moving up again, re-re-discover the trend?

Kela: Maybe next two quarters, the June and the September quarter, once we start to talk of 2009 or 2010 earnings, we must not forget that a lot of capacity expansion has happened by the top 50 companies in India, there is a lot of investment, you are seeing a USD 12 billion inflow on the FDI side. All of it in my opinion will definitely see better earnings and you might again have an earnings surprise in 2009 and 2010, which is why I believe that over the next six months, you may have this kind of a consolidation phase, but once the market starts to talk, 2009-10 instead of 2008-09, then the markets should again start to move up.