Expect earnings to downgrade going forward: Elara Capital

European situation is diabolic and news driven and the solution are not going to be short term. Going forward there will be earning downgrades further as the economy is not doing well. We expect that the government will open more sectors for the FDI or relax some norms and restrictions.

On the monsoon front, because of the bad monsoon if the inflation goes up that is bad for the country because that might hit the consumer demand which has been very robust so far, rural demand might stay intact but we particularly are concerned about the middle income and that might hit the consumer durable sector very hard.

Below is the edited transcript of his interview to CNBC-TV18.

Q: People from the currency market say that investors are waiting with bated breath for any signs of reform from the Indian government. Should nothing seminal come by August 8 when the session starts, do you think we lose a lot in terms of stock markets?

A: The market is definitely expecting some major announcements from the government, further reforms and this includes the opening of a retail and FDI sector and also opening of some sector for investment from our side. But even if the announcements do not come there would be some kneejerk reaction and market might come off.

But market is more or less corrected. It's going to be range bound for foreseeable future because there is no positive news to take markets up from here. We have major issues at the macro level where growth has slowed down, interest rate is still high, inflation is running high and FDI investment is negligible.

So there is no driver for markets to go up from here. There are announcements and the markets could move up but we do not think that it’s going to significantly go up unless fundamentally the situation improves economically in the country.

Q: How important is policy reform as compared to the global situation. The global situation has worsen in the past couple of weeks if that situation continues but we do get some domestic policy reform then how will the market react?

A: European situation is diabolic and news driven and the solution are not going to be short term. It will take at least six to twelve months to get a clear solution because there is a regulatory process of approval of fiscal pact, vision statements, some unification on banking and also on fiscal levels of European countries. Markets will keep reacting depending on whether new is positive or negative.

China slow down is also affecting the sentiment and commodity prices have been correcting because Chinese growth is coming off and it is likely to come off further.

Lastly, the global situation which comprises of the emerging markets, all emerging markets are slowing down. The slow down is significant. India's growth rate is slowing, Brazil is running at 2%-2.5% and the Russian economy is commodity driven. If the commodity prices come off, Russian economy will get affected. India is not significant right now in global context.

I am not sure that money will flow into India even if we announce reforms right now. There maybe some positive reaction and some money might flow in but I think we have got a long road ahead in terms of foreign capital coming to India.