There is room for further upside in India even as valuations of Indian stocks were not entirely cheap, Mark Matthews Asia Pacific Strategist at Fox-Pitt Kelton, said. In an exclusive interview to CNBC-TV18, Matthews said he expected India to grow at 7% next year and added that he was not too alarmed by the country’s state of fiscal deficit. “I was not disappointed by the budget,” he said, adding that we would shift money to India from China where he saw asset bubbles forming.

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

Q: What's your sense—in the last few days we have got some reasonably good earnings numbers from the US, is the world looking like a better place than it was 10 days back?

A: The media focuses on the good news but I would say that really it is a continuation of the theme that we had in the second quarter where the news is just less bad than it was before. I mean if you look at Intel numbers, they were still very weak. If you look at what FedEx is saying, they are guiding for basically flat throughout the remainder of this year and Singapore revised their projection for their GDP this year from minus 9% to somewhere between minus 4-6%. So it is a continuation of that trend where things are less bad than they were before. But when I look at data, I just feel it is still extremely weak. For example Singapore port and Long Beach port in California came out with their June throughput numbers and they were very weak, basically flat on month-on-month (MoM) basis and down anywhere from 17-28% on year-on-year (YoY) basis.

Q: There were some polls conducted though amongst investment analysts who indicated that China and India remained preferred spots. Is that the case with you as well?

A: I was just in the US over the last few weeks marketing and meeting investors there and I sensed that, yes, there is a dawning recognition in America that this is going to be a very long protracted haul out of the problem they are in and as a result they are looking for places outside of the US to invest. So when I was marketing in the US this time last year, bearish on the US just meant being bearish on everything—risk assets everywhere in the world. This time bearish on the US almost bizarrely means bullish on the rest of the world or at least places in the world that do have growth and India and China do have growth.

Now, between China and India, the big difference is that China’s growth is basically being bought by the government through their tremendous fiscal stimulus. So, China is indeed growing faster than India but it is basically fake growth. Whereas, in India, because you don’t have the same kind of tremendous surpluses, you haven’t stimulated the economy nearly as much and your growth is genuine. Yes, there is a lot of good will towards emerging markets now including China and India.

Q: Is there that you get from the region that things are improving or they are less bad, I am talking about Asia specifically now because Singapore had cut its GDP decline forecast early this week, China came in with 7.9% numbers on GDP—is there any sense at all that maybe the cut will not be as deep in the Asian region this year?

A: Yes and I think in India’s case when I look at the GDP forecast for the consensus next year, which is about 7%, I think it is too low. India is going to grow more than 7% next year, so there is room for upside in India and I like India for a whole bunch of reasons. You have lowest exports as a percentage of GDP among the major economies in Asia. Sensex correlation to S&P at around slightly over 50% is very low. The only other country in Asia with lower stock market correlation is Malaysia. That is all good but with China I am concerned that actually there is an asset bubble forming in property and stocks and I think that there is a real risk towards the end of next month and September that the Chinese will tighten, which could actually benefit India. One could see money going into India being taken out of China as a result.

Q: Did you come away from the Union budget feeling okay about the Indian market or were you disappointed?

A: I wasn’t disappointed. I didn’t understand what all the fuss was about with the budget. You can’t do everything in the budget. There is a time and place to do other things. So I was not disappointed and in the least I think it was a good budget—6.8% fiscal deficit is fine for a country like India with the growth trajectory that India has. It is half of what the projected fiscal deficit will be in the US, so I am feeling quite good about it. The only problem with India is that it is so expensive.