Oliver Stoenner, Head-Emerging Markets Research at Commerzbank believes at the end of the third quarter, one will see a stronger, more solid upward momentum in the stock market because investors will get more confident about the basic growth level in particular, with the perspective on 2007.

But he too agrees that there will be a gradual rise and not as strong as it was over the last two years.

Excerpts from CNBC-TV18's exclusive interview with Oliver Stoenner:

Q: How have you read the kind of flows that the Indian market has seen and where does it stand on a valuation basis now?

A: Firstly, it is quite a good news that India is being seen as, especially by European investors, a market with an interesting perspective and as an investment story. I think from a micro perspective or the so-called country perspective, India looks interesting, but the overall environment or the global environment is still not so perfect. 

So we will probably not see a very strong rise in the very short term, but from the medium to longer term perspective, investors are increasingly watching the market. It is my perception that they are willing to increase their positions in Indian stocks.

Q: Is that something you have seen across emerging market funds or BRIC funds, the fact that there have actually been inflows in the past month?

A: Not in the past months, I think the strongest positive sentiment could be seen last year. Since this May and also in the last couple of weeks, we have seen quite a lot of volatility trading.

Lot of investors are still holding on to quite large cash positions and they are quite reluctant to enter new positions, especially with the geo-political risk. Also, the question is how strong will the US economy be. These are some of the important topics at the moment.

Q: What is it that you expect to see for the rest of the year for a market like India in specific; range bound movements or lower levels?

A: I think what we currently see is good stabilization. So I am optimistic that at the end of the US rate hike cycle, we will see new positions build up by international investors.

So my idea is that, maybe at the end of the third quarter, we will see a stronger, more solid upward momentum in the stock market because investors will get more confident about the basic growth level in particular with the perspective on 2007. We will see a gradual rise, but not as strong as we have seen it over the last two years.