Which sectors is Ridham Desai betting on in 2010?

November has been a volatile month for the market, says Udayan Mukherjee, Managing Editor, CNBC-TV18. "Markets are up 4% this week. First there was a 12% kind of fall and just before one could say correction, the market has recovered all of that lost ground."

On the global front, Mukherjee says the S&P 500 is still within a whisker of its intermediate or 2009-high and the dollar despite small attempts at a rebound still remain fairly weak. "That has kept commodities and equity assets across the world in reasonably good shape. The big question is whether it can continue like this till the end of the year or was the crack that we saw last week just a trailer and sign of new things to come?"

Ridham Desai, Managing Director, Morgan Stanley, too shares Mukherjee's uncertainty. He says the markets may remain volatile for next few weeks.

In 2010, he sees markets flirting with the 2008 highs in 2010. So, what is he betting on? Desai expects the banking sector to be among best performing stocks in H1 CY10. He is also positive on industrials, financials, and consumption plays. "There is scope for a consumption-driven upside."

Commenting on earnings growth, Desai says corporate margins will increase in the next four quarters. "We are likely to see about 20-25% growth in the next few quarters."

Here is a verbatim transcript of the exclusive interview with Ridham Desai on CNBC-TV18. Also watch the accompanying video.

Q: It has become very volatile. Do you expect such volatility to continue for the next few weeks?

A: Yes it is quite possible that we may be in a period where volatility may be intense. There is a fair bit of scepticism around the world about how strong growth recovery is going to be. A few central banks have started pulling the plug on the easing cycle - not necessarily tightening but definitely putting an end to the easing cycles. So there is a bit of debate on that as well. So people are talking about the end of easing, "Are we going to get a sustainable growth recovery?" That is leading to a fair bit of scepticism on markets which are up a lot from lows of the year and therefore this volatility maybe there to stay for a while.

Q: The bullish view is that since the Fed is saying there is no tightening around the corner - the dollar remains weak and liquidity remains strong, which is what this market is feeding on anyways. So if there is no change to that then why should markets correct?

A: Indeed, I would agree with that. The worry that I have with that statement is that its becoming all one sided. It is always risky to have one sided trades. It seems fairly obvious that the dollar index should stay weak because the Fed is not indicating any move any time soon and if that surely is the case then risk assets should do well. That is clearly a scenario that could play out over the next few months. We are getting into a period, which is usually good for risk assets - the end of the year and start of the new year. The environment still looks quite positive for equities per se.

So I am not getting perturbed about this. If there is volatility and if the markets to correct in that volatility then to me its still an opportunity to buy because 2010 should still be okay for risk assets especially for Indian equities.

Q: Some people got a bit rattled in the correction, which happened in November. It didn't last very long but the speed was quite a bit. Do you think we could have seen something of the kind of slide that may happen over the next couple of months or do you think its unlikely that markets will correct more than the 10-12% that we saw this month?

A: Through this rally that we have seen in the low point in March, we have had a few of these 10-12% corrections and each time they have happened, people have stood up and said, "Okay, so this is the end of the bull market and we are going back to the lows." But that has not been the case. What we have had is that even though the equity markets per se have rallied quite hard, I think there have been a fair bit of sceptics who have been sitting around thinking that they will get an opportunity to come in and then markets are going to sell-off.

That really provides the floor to the market. So in my view, yes, you may get a few more corrections like this but they probably are corrections is an up trending market. Especially in India's case, we are dealing with an up trending market and you usually want to buy these corrections then sell into strength. So, that is still our base case view on Indian equities.