'Maybe we have been spoilt from quantitative easing'

A: Maybe the first comment I would like to make, coming more from the US side. Economically speaking and also from a profit growth point of view, we are moving into what I call a mid-cycle scenario, so the first part on the cycle immediately after the global financial crisis, you have very aggressive Fed pumping a lot of the liquidity in – that is gone, you had low valuations. I am not going to say that they are extremely stretched, but they are sort of mid-cycle valuation, no longer rock-bottom, and also earnings growth in the US companies, we think maybe 7 percent this year, so not quite as dramatically strong as it was before.

In such a mid-cycle situation, you naturally see more corrections. It is not actually unusual, maybe we have been a bit spoilt from [the monetary easing] after the crisis, but another important element of global markets will also be the issue that we had last two weeks when investors come to terms or really understand better what actually the Chinese authorities are trying to signal and what really happens there.

Sonia: What about India itself? How much of the process of foreign institutional investors (FII) removing money from India is complete? Or is there more to go?

A: I have probably a slightly contrarian view to many other market participants because I think on reform side, something that international investors look at and also potential, even though probably more second half rated for further rate cuts, that all remains in place. The key here really is earnings and when I say earnings, the main swing factor for earnings last year of course was oil, also for the Nifty, if I just disaggregate and say, ex-mining, ex-oil, we had about 10-11 percent earnings growth. But of course, the big drag was mining, which I do not think comes back -- but oil, which I do think comes back, even though it might only happen towards the end of the year. So, we are also now, on our strategy with it.

Within India, we are actually shorting some of the refining names, the marketing names and we are long some of the big oil exploration names and of course, it does depend on where the oil prices goes. But we do see shale capacity and now, also production in the US starting to come off. So, we may be only 3-4 months away from a turning point here. And if that craze is right, not only does the oil sector in India get earnings payback, but all of India, of course, as an index gets that back and so, maybe more second half lower again, but then we can be quite positive on the index again.

Latha: What kind of gains will you expect from India and where will it be in your pecking order of buys? A: The gains I would expect are actually close to 15, possibly even 20 percent and the reason why is I would just assume that the rest of Indian markets, ex-oil and ex-mining grows by about 11-12 percent and that is not a far stretch really. So, what holds the key, when oil and if oil comes back, and I admit, it may not be in the first, possibly not even in the second quarter, but I think the case is getting stronger and stronger that it does come back, then you get an additional payback from what was a drag last year. You can get close to 20 percent earnings growth and that really ultimately is the driver of course also in the Indian markets, so I think we can see quite a spike in the second half and really get to this double digit return. Also the other question. Currently, again, might also be a bit contrarian. The overweight is actually in the Chinese and H-share market, but it has less to do with the economic cooling. We all know it is cooling actually. Our gross domestic product (GDP) forecast is below market consensus, but we do see some very earnings positive trends which is that these companies in there, starting to address their over capacity. That pulls down your GDP but it brings up your earnings growth. We think the market has not quite seen through this.