Q: In the short-term, how high would you rate the chances that the market actually settles into a range is very boring for the next few weeks does nothing?

A: I don’t think any range has lasted more than a few days. The markets have been very strongly trending markets this year as they were in the last four-five years. The trading ranges have been in consolidation phases before markets breakout in whatever direction they have been trading in.

So when there was a bull market, the consolidations were very short. There were very sharp, short pullbacks and then markets would continue going up. This time the pullbacks while they may not have been that sharp, there have been few pullbacks of a few days duration and then they continue going down.

So I don’t think there is any trading range or any such situation developing at all. Merely because the markets don’t do much for three days, it starts to build theories that it is in a trading range but I don’t think that is a real possibility.

Q: There is the promise of course now of fiscal action and monetary action coming together. How much does that translate into for the market in real terms you think?

A: Maybe a day’s rally, maybe two days. One should remember this is like a Morphine shot you need greater and greater Morphine shots in order to kill the pain and that is the way this thing works.

The first one will lead to greater euphoria and each successive injection whether it is monetary or fiscal – in economics they call it the Law of Diminishing Marginal Utility and that is the way markets look at such stimuli packages.

So globally, the first ones (packages) did a lot of good in terms of market action and then successively markets say that nothing is working and it is just another stimulus package.

In India we haven’t seen anything on the fiscal side yet. So that may help for a couple of days maybe three days but it is just very little – USD 10 billion packages is nothing.

I don’t think it conveys a very good picture to the world that our neighbour is putting up a USD 550 billion package and here we are announcing a USD 10 billion package. It doesn’t seem right. They may as well not announce and on a subterranean basis — keep doing what you are doing on a slightly accelerated basis — why make a big song and dance about something which is like 2% of what China is doing? So it’s better not talk about it.

Q: How are you reading 2009 now if there is a big fall or big leg down coming around the January numbers after that how do you see the rest of 2009?

A: The numbers in FY10 will be substantially worse. The slowdown has accelerated post the middle of the calendar year 2009. So we have had more or less five-six months of reasonable earnings growth and reasonable GDP (Gross Domestic Product) growth coming and that’s not going to be replicable for the rest of the financial year and the calendar year of 2009. Our sense if FY10 will be definitely a down year in terms of earnings for India. I cannot see which sector will lead earnings growth. On an aggregate basis there might be a few sectors which will deliver positive earnings growth but you will not see the entire market deliver that largely because big companies like Reliance or the auto pack or the metal pack none of those companies are going to have earnings growth. You can only debate how much lower the earnings will go but growth is going to be very dim for a large part of the market. Some of the companies like telecom may grow but that’s not going to be enough to offset the decline in earnings we see from a lot of the cyclical companies a lot of infrastructure companies will not show you growth.

So I am pretty certain and its early days to start making definitive forecast in FY10 but our take is you will definitely see a down earnings in FY10. Globally, it will be pretty much the same case; corporate earnings that was strong for last five years will be decimated. Sector wise; semiconductors are hurting, retail is hurting, banks are obviously gone.

The world’s earnings composition also changes in every phase of a bull market. The last five years globally the market was driven largely by the commodity cyclical and they became large part of the indexes worldwide and they became even larger part of earnings growth worldwide. Now that sector is gone, oil is at USD 45/bbl and it can easily hit USD 20 print in the next six-eight months time. Exxon Mobil, iron ore or steel were all the big drivers of earnings growth but those are not going to come back for many years in terms of earnings growth.

You might well see a situation where they might make losses 12 months from now because it is our view that commodity prices will breach the lows of 2002. I am talking about the absolute commodity prices, which means that the stocks of those commodities so whether it is BHP Billiton, Rio Tinto or Exxon Mobil, Companhia Vale do Rio Doce (CVRD) or Indian metal companies should all trade lower than their prices of 2002-03, in terms of the absolute stock price. When the commodity price breaches the lows of 2002 the stocks of those companies will trade even lower because these companies have upped their risk in the last five years. They have gone and made acquisitions, they have leveraged their balance sheets up. Rio Tinto has got USD 46 billion of debt and that is a lot of debt built up in the last few years and about USD 8-10 billion is coming due in the next 12 months time.

These companies are far riskier than they were at the trough of the commodity cycle. So when you hit another trough, these stocks will go down even lower and therefore the earnings will obviously be linked to the trough. I don’t see how that earnings growth is going to be replicable out of the same pack. So may be some other pack has to emerge and it is too early in this bear market to start talking of the sector, which balances out the negatives of the commodity cyclical.