Media caught up with Vallabh Bhanshali, chairman, ENAM Financial, for his views on the markers and the calls made by ENAM. Excerpts:

Lets start with the big picture. Markets at 18,000. How would you characterize the environment?

I think quite healthy at this point of time. We have had a fairly good monsoon, although it has slowed down a little bit. There is general caution all around the world. The markets have been moving up cautiously. Primary markets are coming back to some extent. All in all, some talk of reform. So good news on the whole.

What about the margin of safety, and what about valuations? Are you comfortable with them?

Some of it is psychological where people are feeling a huge margin of safety and some of it is financial, where I think the numbers probably are on the rise. But early fair bit of margin even now.

If you look at valuations for Indian markets, the markets are trading at a 50% premium to other emerging markets. Can Indian markets sustain such a high premium?

The point is they began at no premium and so 10% was okay, so was 20% and 50%. So markets will find where the water settles really. One should not worry too much on account of relative markets. One should look at the absolute numbers, which are still looking okay. So I would say that we have room to go up.

In 2010, Indian markets have massively outperformed. Global markets have come down. Chinese markets at a 52-week low. Indian markets are at a 3-year high. On a longer-term basis, such a strong outperformance. Can it really sustain?

It cannot, but thats okay. That is because these asset classes have got established. Plus there is a larger pool of capital invested in the domestic market. For example, insurance companies, mutual funds etc. for whom there is no other place to go. So I think this market is very well established.

So are we in earnings-driven market or a typical liquidity-driven market where you are forced to chase stocks because of compulsions?

Our institutional market unfortunately is doomed to follow liquidity. If investors pull out the money, they have no choice but to sell. It does not matter where the valuations are. They cannot sit on large amounts of capital either. Therefore, this will always remain as I would like to say its a techno-fundamental market which would be driven both by liquidity and valuations. The liquidity phase of the market is increasingly going to recede in terms of value investors liquidity and it will be liquidity of the momentum players and one has to see whether this momentum comes or grows that will be the question. Otherwise fundamentally we are in a very interesting phase where we are going to have equal balance of liquidity and earnings growth driving the market.

But across the board, the low-hanging fruits, according to you, have been plucked now. Is it more like a stock pickers market?

I would say generally that is correct.