Even as the world is looking up to China to lead a recovery from the financial crisis, Stephen Roach, chairman of Morgan Stanley Asia, said India was the country to watch out for. “I love India,” Roach said. “I mean, of all the economies and countries I spend my time out in Asia, India’s outlook looks terrific right now.”

India’s micro factors like workforce, markets and financial institutions were in sound shape, Roach said, and added that the macro like savings, foreign direct investment situation were improving even though infrastructure continued to remain a hitch. “Then there’s politics: the communists are now out of the government as of the elections in mid May and there is a real chance to push through reforms. So when you got micro and macro in politics working in the same direction, you got a sweet spot,” he said, adding, “People are ignoring India because it fell far behind China in the last 15-20 years but I like what’s going on there right now, it could be a big surprise up ahead.”

Roach attributed the recent rally in global markets to excessive liquidity that had been pumped into the global economy. “Liquidity is seeking return and right now, these markets are priced for a recovery that’s going to [even] end up disappointing the optimistic.”

Roach, however, said the global financial crisis over not getting over anytime soon. “Sorry to break the news but the financial crisis is not over,” he said. “There are plenty more write-offs of the bad paper to come. 75% of the world’s economies are still contracting today. And the biggest piece on the demand side of the global economy is the American consumer who is dead in the water,” Roach said.

“This is going to be an unusually anemic recovery and when markets start pricing in vigorous earnings expectations, they will be in for a rude awakening.”