Narayan Ramachandran, MD at Morgan Stanley Investment Managers, said the bull-run in the market would continue for quite some time. According to Ramachandran, the fundamentals are looking good. As long as China continues with the way it is doing, the markets are in for a positive ride, he said.

Nilesh Shah, MD and CEO at Envision Capital, said the markets would continue to rally till it crosses the 20 PE multiple mark. The fundamentals are getting stronger, he added.

Excerpts from CNBC-TV18's exclusive interview with Narayan Ramachandran and Nilesh Shah:

Q: The market at these all time-highs. What are your thoughts? Has it come as a bit of surprise at these levels so soon?

Ramachandran: Yes, these levels, so soon were a bit of surprise. But I am reasonably confident that we are in it for quite a long time. So, in that sense, I am not surprised on the continuing bull run.

Q: What is going right in this market? Is it just liquidity or is it a combination of liquidity supported by fundamentals?

Ramachandran: It is always that fundamentals have to work in order to the markets to move up and the fundamentals are good. But I think the underlying global situation needs to be appreciated; we are in a very broad disinflationary world and in that context there is some cyclical inflation here and there, which spooks people every few months.

But as long as China continues the way it is doing, markets are in for a positive ride.

Q: What is your sense? Is it just liquidity, which is propelling stock prices up, or do you think fundamentals have turned for the better in the last couple of months?

Shah: I have been a firm believer that it is essentially liquidity, which chases fundamentals and growth. The reality is that fundamentals are continuing to look pretty much strong; they have not materially changed. In fact, in between the Indian economy as well as the markets did hit some kind of an air-pocket in terms of the inflationary environment and its impact on the interest rate cycle.

But, clearly, because of the government’s initiatives we have seen the inflation come down significantly. By and large, most of the captains of the industry now believe that the interest rate cycle has peaked. So, the clouds that were emerging on the macro horizon seem to be disappearing.

That has not really had a telling impact on the corporate earnings. So, the earnings growth has by and large been pretty much good, barring the technology sector, which had some amount of disappointment. But otherwise, the earnings have been pretty much strong.

Despite the rally, we are really not in a situation, where the markets are trading at 20-plus PE multiples; we are still trading at sub-20 PE multiples. The markets will continue to rally till we have really crossed that 20 PE multiple mark. So, I think from that perspective it is clearly the fundamental story, which has been getting stronger and has remained intact.

As a result, India continues to be a very favourite destination for all global investors as well as several domestic investors.

Q: Is there more headroom in the near term, till we got to those 20 kind of PE multiples?

Shah: If we look at the current financial year - 2007-08 - by and large, at the beginning of the year, we were all talking about close to Rs 800 EPS for the Sensex. Those numbers have got significantly marked up to about Rs 850 EPS. So, if we were to put that kind of 20 PE multiple and take that as the upper range of the band, we probably have still some more headroom to go.

Possibly, we may not reach that kind of 20 PE multiple mark, but we could probably get pretty much close to that before we see a situation where investors start taking a significantly more cautious approach and before the ground is really set for a significant correction.

Q: What is your sense from a valuation paradigm? Do you have any worries or do you think even valuations could probably support a bit more headroom from here?

Ramachandran: I am not generally concerned about valuations and this case is no different. However, I would say that the markets have gone up for so long now that it is quite likely from a pure capital market point of view that we will likely have a near-term correction. And, the trigger for that near-term correction may come from the fact that once again people wake up and find that US growth in the second half is not being as slow as one might now think it to be. So, we have seen phases of growth in the US; once upon a time, growth in US was fine, but now it is in deep trouble - thanks to the sub-prime crisis and real estate in the US.

I think you will get a bit of surprise the other way, which says maybe we are not that bad after all. When you get that little economic observation, it is likely that we would have a correction. I think quite differently from Shah on this; in the very near term, we have the possibility of a correction. But in the medium term, reasonably quite a lot of headroom is seen.

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