WF: We've seen close to US$ 3Bn of FII sales in recent weeks - which caused the Sensex to shed around 2000 points. Global newsflow - Greece, Dubai, China etc seem to dominate sentiment and are impacting our markets as well. To what extent are these concerns genuine and what could be implications for our markets?

Alroy Lobo: Let me start with what is happening in Greece, there is clearly an issue in terms of Greece fiscal deficit running out of hand and there have been lot of attempts in European Union to ensure that Greece falls in line. Now if you look at the quantum of debt which is maturing in 2010, it is something like 38 billion euros which is not a very big number. So that is something which can be refinanced. I think the point to note is the European Union really needs to have Greece implement very strong fiscal measures to redeem deficits. The EU has given them time till March 16th to implement there own measures and after March 16th there will be a review by the European Union and if they find the measures unsatisfactory, they would basically go ahead and impose measures onto Greece and Greece will not be allowed to vote on these proposals. So I think the base case is very clearly that this issue will be resolved - which is not difficult to resolve given the extent of refinance. It is not difficult to imagine that Germany comes to the rescue. I don't think EU would like Greece to move out of the EU. And I don't think anybody wants to see a soverign default - post Lehman, everybody knows the implications of allowing such things to actually happen. I therefore think the probability of default is extremely low and if that probability were to materialize for whatever reason, then I think it will be pretty negative for the market to cut into. But, that is not our base case.

Second is on China - and here, I would also like to bring in India. Due to the strong revival of these two economies and their growth prospects, both theses countries will go for a stimulus exit. This is only to be expected I think it is in right order and I don't think that the market should be concerned, because if you don't do it then you will risk demand inflation, which will spoil the whole party going forward.

The bigger issue is about when the developed world begins its stimulus exits. My sense is that this will happen towards the end of this calendar year or the beginning of next calendar year. That's the time that the markets could get edgy. That's one and second is there are very clear concerns on how politics will play a role in shaping regulatory changes in the banking sector. If you look at the rhetoric which is there, it clearly seems to be suggesting that a set of strict regulations on banks will come to be. We have to hope that political pressures don't influence the lawmakers to take drastic action that can create setbacks for the global credit and investment environment.

So this year is going to be a year of policy action for both domestic front and as well as the global front. Markets could turn choppy during phases of key policy announcements - both in India and across the world.

WF: Some market experts talk about this year being the year of consolidation as well as a fairly wide trading range and people are putting out numbers from 13000 to 20000 so on and so forth as the trading range. Do you have any such sort of a range in mind for the markets this year?

Alroy Lobo: I think purely on domestic concerns, I don't see the market really coming of too much from the current levels because I think the India story looks very good. As we enter fiscal 2011 we are clearly seeing recovery and growth and obviously there are certain sectors which will benefit more than others. But in general I think you are seeing a pick up in the economy and that is the reason why you are seeing some pockets of demand inflation also coming back. Credit sanctions are clearly on the rise, sanctions increasing means that credit growths will pick up in the next year. Next year is also going to be positive for GDP growth because agricultural growth will have the tailwinds of a low base effect. Exports could pick up on global recovery and there is going to be a pick up in investment activity as credit expands. Next year, I think GDP numbers is going to be 8% in real terms. Which I think is a pretty positive momemtum. I would say that keeping that in mind the down side for the market from a pure domestic perspective it is limited. If any global factors create a sell off in our markets, that could well be a good buying opportunity.

WF: Inflation, fiscal deficit and withdrawal of fiscal stimuli are cited as the main domestic concerns. What is your perspective on these issues?

Alroy Lobo: I think inflation would start trailing down from June onwards and we will see this easing off. But the Central Bank can't wait for that to come down and then decide on policies because policies take time to manifest themselves, so I would say that the central bank is more worried that it doesn't want a toxic combination of recovery setting in and demand inflation at the same time. So I think inflation is the less of the concern - especially as we get into the second half of the year.

The issues are clearly on the fiscal deficit and I think the fiscal deficit is large and I would be positive if they take measures to bring down the fiscal deficit to less than 6%. If they do that ,then the market should react positively. That would call for some change in the way we are looking at, for example, reforms on subsidy particularly oil reforms. If they were to implement even in part some of the expert committee's recommendations, I think the market would take it extremely positive because it will clearly set the tone for strong fiscal consolidation. Measures on disinvestment and rollback of fiscal stimuli will also contribute to help control the number to less than 6%.

Rollback of the fiscal stimuli is not a bad move. What has happened is that last year we saw urban consumption getting impacted because of poor growth prospects, job cuts, salary cuts, closures, etc. This year, consumption is coming back so that will support growth. So even though you are likely to see some withdrawal of stimulus, there should be sufficient demand to support growth. The Government has to strike a balance between growth and inflation and a gradual withdrawal of stimuli is a step in the right direction.

WF: And finally, at the close of the earnings season, what is your reading from the numbers you just see - is it reaffirming the growth story or are there pockets of concerns for you?

Alroy Lobo: The earning season which when past I think is relatively mixed. I don't think anything I've seen has significantly altered what could be the next year's numbers. And I think next year we are looking at earnings growth for the market being in excess of 20%. This year it would be relatively low somewhere around 2% to 3%. So that is the kind of rebound we are looking at. Lot of things are coming out of base effect particularly with regard to commodities. But in general what happens is that as the momentum starts picking up operating leverage also starts kicking in. The way the operating leverage works is, today if you look at India's potential GDP growth rate, it will be closer to something like 8%. Now when you are growing less than potential, the operating leverage works against you. As you start growing at or above potential, the operating leverage starts working in your favour. Next year we are looking at growth in real GDP terms to 8%. My sense is that if things go well it would also go ahead of that. That's when the operating leverage starts kicking in - that's when earnings numbers start looking better and earnings estimates get upgraded. But we will have to wait and watch as the year progresses. But clearly the road map is that we are going to move towards our potential 8% GDP growth and start going ahead of it in the subsequent years. In which case, the FY 2012 numbers will also look pretty decent. I think market would take both FY 2011 and FY 2012 into consideration when we look at India.