WF: Do you see any domestic factors - earnings, credit policy or inflation that are worrying from an equity market perspective? Is this correction more due to global factors or are there local factors at play as well? Where do you see markets headed and what should investors do now?

Anup: I think from a corporate earnings perspective things are okay. Nothing that is out of the ordinary in terms of any negatives - results have been on track and probably ahead of expectations in many cases. So, from a corporate earnings perspective we don't see any issues per se.

I think from the policy perspective, clearly inflation is the biggest concern for any investor - and specifically what the policy measures would be around that. One would expect the RBI to follow up inflation with some rate hikes - but everybody does understand that it is more a supply side effect and you can't really solve it just by increasing rates. Our sense is that the Government might not want to risk too much of ahead of the next monsoons - the last thing they can afford is to have two bad monsoons in a row.

Our sense is that they will probably be very easy in the first half in their policy measures and really take more action in the second half of the year. Also, with disinvestments around the corner, we have seen the Government very consistently trying to talk up some of the issues that they have been in planning. It is quite possible that this credit policy and the budget will in that sense be quite lenient from a policy perspective.

So local factors frankly we don't think will be significant, in terms of the coming in the way of the trend of markets.

Clearly what is of more concern is global behaviour. We have seen global markets beginning to correct strongly. News flow from China drives perceptions across emerging markets on the whole. To add to that, there are comments coming from the US as well.

It is difficult to relate one to one the market impact of all of these comments and news flow, but the fact of the matter remains that you had a little bit of a top ending market which becomes the reason for the markets to start liquidating themselves a little bit.

Our sense is that this year is going to be range bound - but with a large band. We have seen even in the 90's when we had range bound markets, the difference between the low's and high's were as much as 50 to 60 %. This year could well be one such year - with a broad trading range between say 13,000 and 20,000 on the Sensex. Corrective modes within this range will see sharp sell offs - and we are going through one right now. You want to be buying into such corrections. Other than that, a stock specific approach is what is likely to work best this year - and that's what we have been focusing on over the last 6 months. So long as markets are in a range, there is a desire to look for value. That's a good time for stock picking a good time to strive to deliver alpha. When valuations go through the roof, everybody forgets any sense of value. That's not a great time to try and add alpha.

We've been saying that these market conditions reinforce the need for investors to stick with a disciplined investment approach - systematic investing and asset allocation. You need to stay invested in the markets as the long term potential is clearly strong but you should only be invested to the extent that you can live with 25% to 30% interim dips.

WF: Within equities, is there a case for a sharper downturn in commodity stocks, given China's keenness to cool down prices of its raw materials?

Anup: Yes, that is quite possible. Commodities are the beta part of the market - and have benefitted from a weak dollar. Now, with the dollar beginning to correct, commodities are likely to face the brunt of any sell off.

Commodities over the last 5 years have also acquired an investment and a speculative element - they are no longer only industrial use oriented. There are ETFs now in base metals - and speculative activity is also quite high. This adds to the beta element in commodities.

WF: There are some who say that commodities are the best hedge against inflation and must therefore be bought as a part of a core portfolio. What is your take on this?

Anup: I am not sure I agree with that view. I think commodities are to be either traded or used as tactical positions - not as core long term holdings.

Commodities are cyclical in nature and commodity companies earnings also fluctuate dramatically. If you buy a commodity company and sit down for 10-15 years, I am not sure that is the best way to participate in this sector. A lot will depend on what stage of the cycle you got in. You need to be contra-minded to play this sector.

I also don't think we should use traditional PE multiples to judge valuations of commodity companies. We use much stronger anchors like book value. We always look at commodity valuations as a bit of a rubber band around book value. Lets say if the book value is 100 you have to start looking to buy commodity stocks when they go below book value. Typically, in bad times, commodity companies are known to go all the way down to half to even one third the book value. That's when there will be a lot of negatives in the market about the sector and that is always the time to buy. Likewise, on the other side when these stocks become 4- 5 times book as some of them are today, you know you are on the wrong side of the trade, especially from a near term perspective.

WF : What is your view on the infrastructure sector?

Anup : We think this is a great time to consider infrastructure and funds like the DSP Blackrock TIGER Fund. Back towards the end of 2007, when valuations of this sector had reached uncomfortably high levels, we were actually dissuading investors from investing in this fund - yet we got a lot of flows. We are in the opposite situation today. There is some disappointment about this sector at present in the market. We are very optimistic about this sector as we believe the next leg of growth in India will be led more by investment than consumption. This is the time to invest in infrastructure funds - I say this even as I see very little flows actually coming in to this theme.

WF: Does the recent dollar strengthening change your view about a long term weakness in the dollar?

Anup: No, you will have these sorts of trading moves, but frankly we can't see anything to cause the dollar to move up dramatically.

WF: What is your view on gold? It has corrected sharply after posting an all-time high.

Anup: We continue to be positive on gold. Despite a year where you have seen financial assets doing extremely well, gold has still held on. There is a lot to be said about its utility as a hedge. In an environment where a debate on inflation versus deflation continues and where recovery in large economies continues to be muted and where currency printing has occurred on the scale it has, there is a lot of merit in holding gold as a hedge. We continue to recommend that investors hold 10% of their portfolio in gold and related assets.