Here is a verbatim transcript of the exclusive interview on Bloomberg TV with Alroy Lobo - Chief Strategist and Global Head Equities Asset Management, Kotak Group.

Question - What is your outlook for the Indian market? It has lost half of its value but again it’s been up 120% in last 2/3 years only?

Alroy - This year has been a very challenging year but again if you look at 2009, our view is that we’ll see a much better 2009 than we’ve seen a 2008. I wouldn’t be surprised if by end of the next calendar year we’ll see the market up atleast 25 – 30% from current levels. However I’d like to mention that we’re likely to see a more positive outlook to the markets post June next year as a lot of catalysts are sitting out there, making the second half better than the first.

Question - The PE ratios are the traditional barometers of cheapness. Are stocks looking particularly cheap or too risky?

Alroy - They are looking cheap. Not only if you look at the PE ratios but the way they imply the implied equity risk premium – that clearly indicates a very high level of risk aversion – even higher that what we saw in the mid 90s. Given the fact that India has structurally transformed over the last 10 years, clearly the implied equities premium should be far lower. So the market is clearly very attractively valued. The growth characteristic of the markets have clearly changed from the earlier earnings growth perspective, earnings growth could significantly decelerate and maybe be relatively less than 8% as we move  into the next year. And that whats the market is trying to tell you…it wants to see some recovery in earning growth profile before it starts resuming an up trend.

Question - Whats your prediction …will we ever get to the high levels that we saw in peak?

Alroy - It’s going to take time to get there. The peak was defined by a lot of leveraged money in the system. Now that money is out of the system so now we’re looking at markets responding to fundamental news flow and it is going to be less liquidity driven. We’re going to see a reconstitution of new participants in the market which will lead the rally upwards. All this will take atleast about 6 months and therefore 2nd half being better. But markets reaching its earlier peak is at least 2 to 2.5 years away.

Question - Your favourite sector in India for a rebound?

Alroy - Looking at earning growth profile and the fact that elections are around in May/June, we’ll see a new government in place with a 5 year term ahead of them. The low commodity prices, low interest rates regimes will flow into returns. Markets will start discounting the next fiscal year, fiscal 2011 and that’s when we’ll see results.