One should not rely too much on traditional metrics such as price to earnings (PE) to judge whether valuations are expensive. For instance, the market is usually valued at either trailing (Rs 1,350 EPS in FY16, translating into 21 times PE for Sensex) or one-year forward basis (expected FY17 EPS of Rs 1,550; 18.3 times) but should earnings rise another 15-20 percent in the next fiscal, valuations would revert to mean of 15-16 times within 6-8 months on FY18 basis.

Because earnings have been depressed [over the past few years], the price is looking high, he would use another indicator - marketcap to GDP, currently at a reasonable 73 percent - - to evaluate the market.

The all time high is all because of the underlying trend or the negative interest rate, monsoon, and all sorts of things happening around and even global markets are also good. I think all the factors are in confluence right now and the mood is good. What I am seeing is that sector after sector: the impact of digital and what's going to happen to the financial sector or even the kind of developments in oil sector, a lot of these things are very positive. So, very clearly, there are some segments of the market which are doing extremely well and some segments of the market, they are slow. However, the opportunities, like Cement, for few years, the whole industry has been in low profitability situation. However, what has happened in China starting from 1990, we are at a consumption level of 1990 in China at about 250 million tonne. So, from there, it went 10x to 2.5 billion tonne of cement being consumed right now. So, that is a kind of positive we have. Housing itself can consume a 1 billion tonne. So, those are the kind of eye opener kind of situations we are seeing. Now, the issue is whether it is going to happen or not.

I know one thing that at current levels of 70-73 percent of gross domestic product (GDP), market cap of GDP, earnings being depressed right now and we are looking at post monsoon inflation coming down and lower interest rates and a lot of things. I would think that valuations are not elevated, though in terms of P/E, because earnings are depressed so the price is looking high. So, it is a relative stuff.

If your corporate profit to GDP instead of 3.5 percent is 7 percent, the same PE multiple instead of 24 it will look like 12. However, that PE has no meaning; it is not the normal PE. Right now I would say the earnings are not normal and hence PE calculation is also not normal. It is not that we can ignore that entire PE but yet I think there is good room for the PE to be adjusted for the normalized earnings which I would think is about at least 25 percent. So, if you do about 16-17 times, we are talking about very normal kind of PE multiple at this juncture.

From HDFC Bank's Aditya Puri’s talk it was very clear that the banking opportunity with the PSU banks is at standstill and foreign banks are kind of reducing their operations here when the economy is on surge. The banks which are well positioned for risk management, offerings and the current profits, capital adequacy, have a large opportunity ahead of them. 

I am really confused this time to see the investor behaviour domestically. They have done so well and timing the correction also. However, I don’t think there will be a buying panic or anything like that but they will stop selling. That itself will do a lot of good to the whole thing. Foreign institutional investors (FIIs) are buying and today domestics are selling, so, if they stop selling from where they will buy? They have to put the stock prices much higher to get the stocks. So, I think not selling itself will be a big trigger and if they actually get onto buying because somebody who is selling right now to turn them on to buy convincingly, you need some change of the facts.

Whatever we see in terms of six months to one year targets – mood is good, I can only feel that downside is limited, upside is very good and particularly upside for a well chosen portfolio is extremely good. So, one has to be -- though the market might stay here or maybe 9,500 or 9,700 or even 10,000 but that 10 percent move is not that important in the sense that if you make 10 percent I would not think that you have done wonderfully well in the market. However, in that 10 percent move I see 20-25 percent kind of return for a well chosen portfolio..