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

Q: What do you think, do you expect more weakness in the market over the next few sessions or is it beginning to stabilize?

A: I think it is beginning to stabilize. There is glimmer of hope emerging on this subprime crisis, the bids have started emerging and subprime CDOs and the bids have started improving in terms of quantum. I think probably the worst of subprime is behind us and we will continue to see some issues here and there but it will not be as bad as we have seen in the last month.

The Indian markets also which had moved up little bit in terms of fair value plus level has corrected and some of the momentum stocks have corrected more sharply. This is probably the first time where we have seen fundamentally undervalued stocks going up even when the markets were coming down so that the rotation has also started. It all gives us confidence that probably we are near the bottom and market should start stabilizing.

Q: What is your sense of what is happening with the money flows from the Far East, everyone is watching with great concern what is happening with the yen; is there genuinely a huge risk aversion happening right now?

A: It is very difficult to say because we advise couple of Japan funds and there we have seen subscriptions coming into our funds even when yen was at 114 and even when yen was at 109. Maybe the transmission effect is in some other flows but certainly Japanese investors we are seeing the flows coming in but what we have seen is that some of the Korean investors have started redeeming money from India dedicated funds in Korea after the funds have started coming down along with the market.

We have seen two different patterns; the Japanese investors are still sending in the money, the Korean investors seem to have pull out some money.

Q: How would you approach the power space now, has the valuations froth been skimmed off completely or would you wait for lower levels before buying them?

A: I think within power sector you will have to differentiate between the power transmission, power equipment manufacturers and pure utility companies. Each company today probably has been going little bit higher on the valuation side. That is probably being justified based on the blue sky scenario and we think though little bit of froth has been recovered back there is still some more froth there so it is at best to cautiously trade into that sector rather than aggressively trade into that sector.

Q: You track the currency market as well, is it time to start looking at some of these rupee sensitives or do you think this weakness is temporary on the rupee?

A: On the currency side though I am not an expert but whatever little I track, one is that the Reserve Bank of India has been defending certain level of rupee on a very strong basis. Secondly, the rising rupee has casted a fairly big shadow over sectors especially like textiles, automotive components and handicrafts, a large portion of India population is dependent upon this and there will be huge pressure to ensure that rupee continues to remain within certain band and does not go upwards from current level.

The government, the ministry of finance has provided RBI various tools in the form of MSS increased limits, to defend currency at that level. So clearly the RBI has the desire as well as the ability to defend rupee at certain level and if we see the behaviour of various other currencies, which has kind of appreciated significantly against dollars, even that trend is slowly but steadily softening. So if we put all those things together- will rupee appreciate from current level looks unlikely the RBI will defend that level, can rupee depreciate from current level probably a little bit if the market takes into account the RBI’s vigil to defend rupee at that level. So it is definitely time to look at some of the rupee sensitive sectors.

contd on pg 2..