By and large, Asian markets are dependent on foreign inflows. Flows by their very nature tend to chase economic growth, earning visi-bility, political stability and good gover-nance, safety of money, strong domestic demand and favorable demographics. If one analyses the region and looks at the marked economic slowdown in China, the unfortunate chain of events in Japan and growth (both economically and thereby earnings), no other Asian economy will give you the numbers as will India. We are still seemingly one of the better bets for years to come, until the FIIs discover another India elsewhere in Asia. So I am reasonably confident that at attractive price points in relative terms, India will stand out compared to our Asian peers.

On the earnings front the fourth quarter numbers are going to set the tone for the next financial year. I have, since the beginning of this year, maintained that there will be earnings downgrades going forward, which is now becoming a consensus. Looking at the way commodity prices – particu-larly crude, copper, aluminium, coking coal and iron ore – have soared, manu-facturing and infrastructure companies are going to bear the brunt of it on the margins. Also, seeing the last couple of IIP numbers, I am a little circumspect about how the numbers on capital goods and infrastructure companies will grow. The auto numbers are show-ing signs of tiring out and cement will be under cost pressures. IT, though, might hold out if Accenture and Oracle numbers are anything to go by. However, I can see a four per cent to five per cent earnings downgrade for the next fiscal.

The biggest trigger would be if commodity prices ease substantially and the political environment in the country stabilises significantly. Both are unknown at this point and, there-fore, my stance at least until about October this year would be a bit bear-ish. I think the market will start to turn around by October/November this year with most of the excess bag-gage pegging us back now, correcting itself by then, and the market then will be looking to FY13 valuations too.

Inflation is a very big concern. In a note to my clients on January 27 this year, I had stated that the RBI would have to work with an eight per cent plus number for this fiscal in the wake of food prices remaining high and crude rising sharply with no one knowing how serious the Middle East problems were going to become. 

In the aforesaid note to my clients, I had stated that the RBI would most likely raise rates by 125 bps this calen-dar year. A 50 bps rise has already hap-pened. The impact of the slowdown in China on commodity prices and effects of the impending events in the MENA region on crude are still indistinct. If we get the earnings downgrades I was talking about and the markets give us a 10 per cent odd correction from these levels (which means stocks would be down between 15 per cent and 30 per cent), I would look at infrastructure, real estate, IT and FMCG with some amount of interest. It is always tough giving advice to any investor when you say invest for a long term, keep your composure when your holdings drop by 15-20 per cent or more, as it is their hard-earned money going to work. But my gut-level feeling is that we are not going to be talking about a new high for the next six months at least and the market will head back to 5200 kind of levels. I would advise them to buy aggressively at those dips and wait for the moment as there are just too many unanswered questions, domestically as well as globally.