Market rally to continue, but road will be bumpy: HSBC

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Philip Poole, global head of emerging markets at HSBC, tells CNBC-TV18 that the rally in equity markets will continue, but the road will not be smooth. "The equity markets sell off last year started to ameliorate and that exposed the fact that valuations are attractive. But there will be pullbacks from here," he said.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: How do you see the global rally now and do you see this liquidity gush continuing for our market?

A: We have seen a much better turn for equities and for risk assets generally. We think the rally has got further to go. Its not kind of smooth process, there will be pullbacks but generally speaking we think we were reasonably constructive about the world view that we have.

The data coming through is relatively supportive in relation to expectations and we think we are moving towards the solution for Greece and the broader euro zone issues probably by the end of the first half although implementation of that solution will take a lot longer.

So many of the risk that responsible for equity markets selling off last year we think started to ameliorate and that exposed the fact that valuations are attractive. So yes we see more upside from here.

Q: What have you made of the developments in Greece so far?

A: I think we are approaching some concrete measures here. What happens in these negotiations is that there is always a lot of brinkmanship on both sides and we still have that and we will have that over the weekend. There is a key meeting on the 20th February and that point it's likely that the euro zone government will agree to the additional bailout.

What then needs to happen, and probably soon after that, is that the debt swap for Greece is agreed and then essentially its about participation in debt swap the extent to which the whole of Greek debt come into the deal and affect the debt reduction which is its designed to deliver. That's the process for Greece and that's going to take to play out a while. There is of course a key data in all of this and that's the maturity deadline in March, so this has to be done or else Greece will for one reason or another end up in a messy default situation.

So I think we are moving towards a solution and it is relatively close now. Beyond that the question is what happens to the Greece in the longer term. Can Greece deliver the austerity measures that it signed up to, can it start to grow over time is going to be critical to make this work. It's a long-term transition, but in the short-term, the plan is coming together.

Q: What is the view on India now after this remarkable rally that we have seen? How are you positioned on India for the remaining part of 2012?

A: India really suffered a lot last year, clearly from the point of view of foreign investor holding Indian stocks. The markets sold off, the currency slowed aggressively as well. As a result of that, we think discretionary consumer stocks is the area of the market that we like best. The team that manages Indian exposure really favours that sector. We also put some Indian exposure in gems market. We started to do that last year, into our gems portfolio and so yes we have become more favourably exposed to India. It's a lot cheaper from valuation point of time than it's been for very long time, so we still see value.

The long-term story for India is still a good one; there are headwinds for example I am not entirely clear that inflation is bottomed or at least is bottomed for the longer term, so that's an issue. The RBI has to be wary of that and in addition to that of course we still have the concern about lack of action or policy paralysis in the system which politicians got to get over because the issue for Indian growth in the longer term is a need to put infrastructure in place, need to press ahead with this investment over time and that's been on hold for too long.