Q: We are almost done with the third quarter earnings - do you think that they can support higher levels for the market?

A: The earnings reporting season has been pretty impressive in India. We have seen pretty strong earnings numbers particularly out of the IT companies, that are global leaders, some of the healthcare names as well as the banks and I think its been a pretty good reporting season, but as expected.

Q: Two days to go before a very important monetary policy announcement from RBI, but there are apprehensions led by inflation that this time around there could be some tightening and the markets are a bit apprehensive. How big a risk does that side pose to the equity markets here?

A: We think liquidity conditions are a challenge for the Indian market. Certainly there has been a tightening of commercial bank liquidity with loan deposit ration rising sharply and approaching levels that is going to put pressure on rates. Then when we look at the economy, a very strong economic growth, which we have been talking about, is good for earnings. But on the other hand, it does put pressure on current account; it does put pressure on inflation. So I wouldn’t be surprised to the see RBI take the opportunity to nudge rates higher again.

Q: So what is the call on the market? I know its been trading way above your expected levels but put all that in now, earnings, your interest rate expectations and tell us what you expect to see around this Budget time which is important time for us?

A: We think that the Indian market is ahead of itself at this point of time. We wouldn’t quibble with the arguments of the long-term prospects for the market, but we do think it’s ahead of itself. Liquidity conditions tightening, valuations are quite high and our valuation models, which suggest Indian valuations, should be materially lower. So we would think that that combination could easily bring the market into a correction.

Q:  How much of a challenge do you think liquidity inflow is going to be for this market, do you expect it to be lot less than what we saw in 2006 or just more tempered?

A: India has been a fantastic recipient of global liquidity flows. Global liquidity conditions, according to our analysts, are now no longer positive. So that is going to be a challenge for India to remain attractive in a context where global money growth slows, and interest rates in the US and Europe are at relatively higher levels. So there will be more of a challenge for India.