Here is a verbatim transcript of the exclusive interview with Vetri Subramaniam on CNBC-TV18. Also see the accompanying video.

Q: Are you cautious above 17,000 or do you think this is one of those phases where momentum will fly in the face of valuation concerns?

A: You should never be in the business of predicting either a significant crash in the market or a momentum lead burst up or a melt up in the market. So, I am not going to be predicting that. When you look at the fundamentals, it is clear that the market is pushing the edges in terms of the comfort zone, in terms of the valuations and therefore it is becoming a very challenging environment. If you really look deep or dig deep, you can find some stock-specific opportunities but they are few and far between. There are some stocks where the valuations could create some troubles for you if the newsflows were to turn adverse. There is a lot of good news priced in, so it is an environment in which you have to be cautious at this point of time.

Q: That concern on valuation though has come hand in hand with a lot of talk about earnings upgrade for the market. Where do you stand on that?

A: If you look at current consensus, right now the market is trading a shade under 20 times on March 2010 earnings. It is possible that there will be some upgrades to those numbers. If you look at some of the trends and if you look at advance tax numbers, there will be some more upgrades to those numbers. But even if you factor all that in, it seems to me that the market is at best trading at 19 or just a shade under 19 times FY10 earnings. That does not really leave too much on the table at this point of time in trying to look for further gains in overall valuations that you see in the market place. This is a challenge which is not unique to India. If you look at markets across the world the challenge is pretty much the same. If you look at the MSCI emerging market, the challenge is pretty much the same. I think valuations are being challenged across the globe so to speak at this point of time. Therefore, one has to be little wary of where one deploys money and at what kind of prices you willing to hold on to some of these stocks.