In an interview with ET Now, Sandip Sabharwal, CEO-PMS, Prabhudas Lilladher, gives his views on markets.

Excerpts: ET Now: After looking at the inflation figure today at 9.11%, what is the market pricing in in terms of RBI action on Friday? Sandip Sabharwal: The 9.11 figure was higher than my expectation as well as market expectation. In fact, I was expecting inflation to be below 9%, however the rupee depreciations need to have hit the manufacturing inflation which have moved up largely due to some basic mineral prices moving up. Essentially, what we seeing is that we are in a difficult macro situation where growth has plummeted to lows and inflation is not falling at the pace at which it should have been which is largely due to the way the rupee has depreciated. Otherwise, given the way global commodities have corrected, we should have seen inflation come off a bit more. As far as RBI action goes, it will be a no action policy in all probability and RBI will go in for more OMOs now to ease the liquidity situation. Inflation, obviously, will come down sharply over the next 2 months both due to a base effect as well as due to primary and food inflation actually coming off but the expectations which had got built up of a CRR cut prior to this inflation data, those no longer seem to be valid at this stage. ET Now: What about commentary from the RBI though that something that the market will be watching out more closely because of rate cut does not happen this time around. We would probably at least be looking for a more dovish policy, do you think that is definitely on the cards? Sandip Sabharwal: The RBI policy is going to be extremely dovish. The tone and tenor of the policy is going to totally change and the reason is that RBI clearly misread the so called strength of the economy. And the fact that they have continuously said that the economy will continue to grow at a pace which actually became quite unbelievable in the last policy because of the ground situation was such that even a 7% growth was becoming difficult to see. So, the commentary is going to turn very dovish and the key is that the entire growth scenario needs to be boosted and which RBI cannot do at this stage because they are not going to ease off in terms of monetary policy immediately. So, what we have to actually see is how the government acts post the parliament session and what policy measures they announce to bring that focus on the economy and faith in the Indian economy. The rupee is falling not because most other emerging markets currencies are falling in the same manner but because investors seem to have lost faith in the Indian economy. ET Now: So what is it at Prabhudas Lilladher that you are recommending in terms of buy as well as sell calls in the medium term? Sandip Sabharwal: It is very clear that we are going through a difficult macro situation. So, immediately there does not seem to be any trigger which actually indicates that markets should move up sharply. However, valuations are such that there is no case for very sharp downturn in the markets also. Looking forward with a 6 to 9-month view, there is going to be a significant easing in terms of interest rates as well as liquidity in the system. We should actually be looking at companies which are interest rates sensitives. So to that extent banks specifically private sector banks look attractively poised, auto stocks look attractively positioned given the valuation and continuous strength in sales growth. And capital goods stocks are very cheap in terms of valuation but there is no real visibility in the immediate term. That is something which investors need to keep in the radar. ET Now: What about the banking pack? Now that there seems to be at least some more clarity on RBI possible action or inaction rather for now, how would you view the banking pack? Sandip Sabharwal: The banking pack is positioned in a manner today where the prices reflect a no-action policy in my view. So just in case there is a CRR cut or some indication of immediate monetary easing, then we could see a rally in banking stocks but if there is no such indication, we could see the banking stocks also remain in a range for the near term for the next few weeks by which time it will become much more clearer that the trajectory of inflation is down and to that extent, there could be a rally setting up at that time. In an interview with ET Now, Steve Brice, Chief Investment Strategist, Standard Chartered Bank, shares his perspective on global markets and Indian rupee. Excerpts: The European Union has reinforced its commitment to resolving the debt crisis. They have spoken broadly about strengthening the EFSF and ESM, but do you believe that's enough to restore sentiment in world markets? I suppose the key question is in terms of the financial firepower it has been thrown at. This problem is still in a situation where they have not given enough. We believe they need around 2 trillion to actually go out and resolve this once and for all and they are a significant way short of that. So to put in place a long-term fiscal framework, obviously we have to see how that's going to be enforced going forward, but that's very

critical from a political perspective and should allow ultimately, we believe, to resolve this crisis, but we are not there yet. Do you think Greece will default in the coming weeks? What do you believe the impact of a default could be on global markets? I suppose that we have already effectively seen that default although is not called a credit event and the question is now do we see them go the full hog. It is a bit difficult to say. We are going to see a continued funding going towards Greece. They still want to keep Greece within the fold ideally, but if it did go down the default route, then it would be very critical that we saw the banking sector being bailed out both obviously in Greece but also within the rest of the region, otherwise we would be in a very destructive environment that would be very damaging economically and to financial markets. Our central scenario is we probably can go through that, but obviously everybody is waiting with bated breath. Is gold really becoming the safe haven amid the kind of global uncertainty that we have seen? We believe gold is still very important from both a portfolio diversification, but also as an asset class in its own right. So if you are looking at inflation, we are still in the inflation and we believe the high debt levels give an incentive to policymakers to ensure we avoid deflation and have higher than average inflation. So in that environment we believe gold should still be doing pretty well. So in the short term, we have been arguing for the last $100 I suppose that we come down to 1600-1650, we are now getting close to that support level. So these are sort of interesting areas for people to be accumulating gold, looking for 1900 next year and then 2100 a bit further out. Across all asset classes for 2012, what's your broad bull and bear call? We have what we call a VIP strategy for investments. So that's managing volatility, protecting against inflation and being paid. So within the first asset class theme, we like macro hedge funds and gold. In terms of protecting against the inflation, we like gold and gold equities. So gold is there in both of the first two themes and in the final one is being paid where we like high-yield debt and high-dividend equities. So those are the sort of main focus areas for us in 2012. What do you believe is the impact of a worsening European situation will be on emerging markets where the expectation is increased allocation for the coming year? I suppose in the short term we still prefer the US and Japan stock markets to emerging market equities, probably over the next three months or so and that's largely due to the fact that markets are less liquid as you say. We are starting to see people retracting credit from back towards Europe, obviously to restore banking's balance sheets and liquidity there and so those are the factors that are going to be argued against the EM in the short term, but over the longer term, emerging markets and particularly emerging Asia clearly has a very strong policy response framework in which they can ease monetary policy or they can ease fiscal policy. So over the longer term, we prefer emerging markets, but we are just waiting for the right timing to sort of push through asset allocation process. In an interview with ET Now, William De Viljder , CIO, BNP Paribas Investment Partners, gives his views on global markets and shares his outlook for 2012. Excerpts: Let me begin by asking you that you have titled your report as '2012: A frugal and crucial year'. In that sense, do you expect global uncertainty to continue, thereby compressing returns across asset classes and so 2012 would not turn out to be a rewarding year for investors at large? The global uncertainty continues and there are some sources of uncertainty. One is what is happening in the Eurozone crisis and how that problem will eventually be solved. The second type of uncertainty is what is happening in terms of the effectiveness of monetary policy in the US because it is of key importance for the world economy that the US is able to shift to a higher gear and on a more lasting basis. And the third type of uncertainty that we will experience as we go in the second half of the year is a kind of a worry about the outcome of the US elections where investors will want to see that the new president would also have a majority in congress so as to be able to adopt the measures which are all required to bring the budget under control. What about your specific trading calls considering your backdrop of market timing being extremely crucial in 2012? We start the year with question marks on Eurozone how that will evolve and a second big question mark is what kind of slowdown do we see both in the emerging world and specifically in Europe as well. I want to quote ECB president Draghi on this. He recently said we will have a mild recession. How mild is mild. Even more importantly from an investor perspective what is going to be the impact on earnings. Let's keep in mind that the consensus is forecasting that the earnings in US next year would rise 10% and

in Europe would rise 9%. These seem to be rather generous assumptions. So that is again an element of uncertainty. So, we start the year on a cautious footing. We are underweight equities and then of course we will adapt our position as market evolves either because clouds go away or because valuations have come down and thereby creating an interesting entry point. Between Europe and the US, which economy do you think will be worse of a better off in the coming year? The US will have a faster growth. The reason is that they have very aggressive monetary policy and also they are not doing anything in terms of fiscal policy. Whereas when you look at Europe, admittedly the monetary policy is also very easy, but with the fiscal policy tightening taking place. And on top of that there is also uncertainty around the Eurozone and what happens is when households and companies are uncertain, they spend less money and that is of course weighing on growth. And that is something which will lead European economic growth to be below the US. By Samruddha Paradkar, Associate Economist at CARE Ratings Ltd In its endeavour to lower inflation the Reserve Bank of India (RBI) raised its key policy rates 5 times (175 bps) since Apr 2011 despite the signs of slowdown in bank credit and industrial activities on account of higher cost of credit. Based on the current macro-economic environment and with the moderation seen in food inflation during the last few weeks, we expect the RBI to take a pause in the interest rate hike in its credit policy review on 16th Dec 2011. Further, also considering the tight liquidity conditions in the system especially in the banking system since early Nov 2011 there is a strong case for a 25 to 50 bps cut in the Cash Reserve Ratio (CRR) ratio. Economic growth and Inflation trade-off: How far successful? The RBI has time and again indicated that inflation is a greater concern and it has been implicit that the RBI is willing to negotiate economic growth in order to bring inflation under control. Maintaining this stance till now the RBI has given out strong signals that taming inflation is its priority. The RBI expects inflation to fall from Dec 2011 onwards and settle around 7% by the end of the fiscal year. Inflation has been stubbornly hovering over 9% since Dec 2010 led by the rising prices of fuel & power (12.4% on an average). However, though inflation in primary articles has been high from the beginning of 2010, it has illustrated a slowdown since Apr 2011. Further, inflation in food articles is moderating since Nov 2011 on account of the harvest is being realized and the high base year effect. The impact of the interest rate hikes has been evident on the production activities in the economy. Manufacturing which has a weight of approximately 75.5% in the industrial production index has slowed down from 11.04% in Mar 2011 to -5.95% in Oct 2011. Further, most of the core industries have taken a hit on account of the interest rate scenario in the country clubbed with the uncertain global economic environment. Therefore, given that the industrial activities have slowed down in the country to a 3.5% for Apr-Oct 2011 over 8.7% for the corresponding period last year, some concerns have arisen about the government meeting its FY12 GDP targets. Also, Bank credit has illustrated slower growth in the current financial year. With incremental credit so far being around Rs. 2,53,448 core (6.4%) compared with Rs. 3,23,592 crore (10.0%) growth seen for the corresponding period last fiscal. Liquidity conditions in the banking system Graph 1: Daily bank borrowings from the RBI

Source: RBI Since early Nov 2011 banks have been borrowing around Rs. 92,000 crore from the RBI on an average through the LAF window at the repo rate of 8.50%. According to the RBI guidelines, they have a comfort zone of 1% of the total demand and time liabilities (Rs. 56,47,264 crore), which translates to around Rs. 60,000 crore at the current level. The above graph shows that the banks have been borrowing over the comfort limit of the RBI, as illustrated by the horizontal green line, since early Nov 2011. Further, the advanced corporate tax payments for the third quarter (30%) that the companies have to pay by 15th Dec 2011 would accentuate the already prevalent cash crunch. Tools with the RBI The RBI has a toolkit that it would use to address the liquidity problem predominant in the banking system today. The RBI has already injected around Rs. 24,300 crore in the system by buying back dated securities through three OMO auctions.