With the European recession looming large, foreign investors are still no longer finding value in India. This is also because India has been one of the worst performing markets in Asia. Depreciating rupee too added to FIIs' woes. Between July and December, the rupee depreciated nearly 18% against the greenback.

Devesh Kumar of RBS feels that 2012 will not bring in any good news either. In an interview to CNBC-TV18, Kumar said that the market is likely to be remain subdued in the first half of 2012.

He feels that all eyes are on the budget now and may usher in some triggers. According to him, some improvement in earnings may reflect in the later half of the year only after the Reserve Bank of India eases rates.
In a departure from big gains in the past two years, investors saw around Rs 20 lakh crore of their wealth eroded as Indian equities tanked in 2011 because of inflation, high interest rates and the uncertain global growth environment accentuated by the euro zone debt crisis.

Also read: Nifty may sink to 3800-4000, buy more in '12, says Sandeep Shah
Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: What is the RBS view going into 2012? What kind of targets are you setting on the Sensex?
A: I have been meeting a lot of people. At the beginning of December, we had our conference in Singapore, Hong Kong. The sense we are getting is that international investors before committing more money they would like to see some more developments on the ground. They are keenly watching India, but yet not sure whether they should be coming in.
When we look at local situation also, if you look at domestic institutions, the inflows are not strong enough. With all that, we feel the first half of the year is going to be lacklustre, range-bound market. In our view, most of the worst fears are priced in, but some more downside remains with the market in first half.
In the second half, we will see a gradual build up mainly because of macro economic numbers and monetary side showing encouraging signals.

As we go into the New Year, in the last session of Parliament, whatever economic actions were expected didnt materialise. Therefore, now all the eyes will be on the next budget session and the government measures to cover fiscal deficit.
The headline speculation is the government is creating crossholdings, passing on government holding to cash rich public sector companies or selling shares to financial institutions. If all those news comes true then that will create a further downside because it will not be liked by the market. But if it doesnt happen then the market would trade in another range till the next budget.

When we look at global situation, in Euro zone, all worst fears are priced in. The resolution may take one-two months. The outcome may not be like the worst fears that people had in the last two months. So, from international side, I think the environment will improve. On the domestic side, monetary side starts building up.
As far as earnings are concerned, that will take some more time to construct because it will take some time to respond to the likely easing of interest rates. So, we feel second half onwards we will see all this reflecting in the stock market indices.

FY13 is a build up phase. In FY14, we will see all earnings getting built up. So, for the year-end, if you look at numbers, we will not be very bullish. If we close 2012 December at something around 18,000 Sensex level, I think that maybe a good number to look at.

Q: The next big trigger for the market is the earnings season that comes in two week. Are you expecting ugly surprises this time because of rupee depreciation or do you think that the worst has been baked in?
A: If we look at external factors influencing domestic earnings, it is not very large. Therefore, there would be some beneficiary impact on software and IT. Other than that, companies, who have some amount of forex exposures, may have some negative surprises. But, overall, I dont see that the next earnings season would be greatly impacted by the rupee, other than IT companies.

Having said that, the impact of interest rate being high, the impact of some amount of moderation in consumer demand growth for interest rate sensitives will reflect in numbers. Therefore, for certain auto companies, for certain durables companies results will not be very good.

As far as construction and infra companies are concerned, we have not seen any build up on their demand side. So, I dont feel that there will be bigger negative surprises. But, at the same time, there wont be any big positives for these sectors, other than technology.

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