It is less about broad market direction. It is more about bottom-up stock picking in Indian market, said, Co-founder,, in an interview with ETNOW.Edited excerpts:In my opinion, there are multiple factors; one, January to April across emerging markets, we saw significant inflows and that has started reversing in May. The first figure for the markets is obviously some amount of FII selling that has come in recent weeks and that follows the trend that we are seeing elsewhere in the region.This is being triggered in turn by the trade worries and the spat between the US and China and some worries on account of slower growth globally if these trade wars were to intensify. Closer at home, the worry is less on elections but more on the continuing pain of one very short or tight liquidity in the system, which is hurting the NBFCs. Second, is slow growth in demand which is being seen in the results of all the consumer companies and that I think follows multiple factors.We have had very little growth in farm incomes, we have had very little increase in employment, government spending has also slowed down which is usual at the time of elections because the government is busy fighting the elections and a lot of the government machinery is deployed in the elections activity. A combination of all these factors is what is leading to softness in the market at this point in time.What we really need to see is a stable government come into place that we will know in about seven, eight days from now. Whether that will happen or not and second, if the new government needs to address this tight liquidity in the system and the fear psychosis that is gripping the equity and bond markets relating to some weak hands in the system needs to be done on a priority basis.Last but not the least, RBI needs to cut rates aggressively, I would recommend by even 50 or 100 bps.I do not know to be honest, because majority opinions seem to indicate that the market is discounting roughly 250 odd seats for the BJP. Clearly, the majority does not expect a Third Front government or a very weak coalition government at this point in time.Some people might be taking a hedge against that outcome but I do not think it is that. It is more the global worries, the trend that is happening elsewhere in emerging markets, and a possibility of the trade war between the US and China intensifying and slow growth.What is really bothering people is the slow growth and this growth needs to reverse and for that to happen, we need significant monetary stimulus, lower interest rates and potentially the government trying to address some of the issues surrounding the NBFC sector.Money is oxygen to these NBFCs and if money is not easily available, even the firms that have adequate assets and collateral, will find it very difficult to refinance their liabilities. They will be forced to sell down their assets at deep haircuts and where no stress exists, stress will emerge. The whole concept of a going concern needs to continue and for that, some serious intervention is required.You are right in a sense except that the causes this time around are different. Like you said, many of us got things wrong but in the hindsight, you have had three successive shocks to the systems; the first shock was demonetisation, the second shock was GST which hurt a lot of the unorganised sector and third shock is the tightness in liquidity.In hindsight again, it appears very simple that when you are administering such large changes to the way you are managing the economy, whether it is demonetisation, GST, RERA or a whole bunch of other regulatory intervention, then at that point in time, you need to provide a significant amount of liquidity to the system which obviously we did not, and we are seeing the after effects of that.Some of it is also unfortunate. It is a timing issue, timing in the sense that ahead of elections, the government spending does slow down. The government spending also slowed down towards the end of fiscal 2019 in response to very low tax collections which the government wanted to make up for in the sense that they cut down on spending in order to be able to report a decent fiscal deficit number.Some of these things have come together. The reasons behind the slowdown three years ago are different from the causes that are causing the slowdown today. But yes, if you zoom out and say let us forget the causes and just let us look at the valuations and the fact that there is no growth, then the market needs to selloff.You would be right but I would venture to argue that the causes are very different, the remedies are very different and we can do it as a system provided we have a government that is able to take some calls and pays attention to this brewing crisis in the financial system.We normally do not talk about stocks, but Mr Uday Kotak in his opening remarks for the Q4 earnings call of Kotak Mahindra Bank said that the financial system stress should not spill over into the real economy. That is the real challenge for the policy markers. I could not agree with him more. That is the real risk that we are grappling with and that is the risk some investors are trying to hedge against.The encouraging part is that at least for the larger banks, the incremental slippage number, an indicator of the quality of their loan book, has started to come off, whether it is the large industrial lenders or the large PSU banks. Obviously, some amount of clean-up still remains. Some of the PSU banks have very low coverage ratios on their loan loss provisions. They will continue to provide heavily against these gross NPAs through 2020.For some PSU banks, the earnings outlook needs to be moderated compared to where we were about a year ago. One key disappointment for me personally is the lack of resolution via the Insolvency and Bankruptcy Code (IBC). The Essar issue still remains stuck in the courts. We were hoping that this gets resolved first in December 2018 quarter than in the March 2019 quarter, but I do not know how long this will continue.I have no idea what the legal merits of the case are. I am not a legal expert but as a system, we need to move forward a little bit faster on this and if it requires that the new government pay attention to the IBC law and make certain changes which prevents some of the views that has been taken place or some of the areas which are probably grey and which are causing the delays through the resolution process, we need to do that because that is critical in bringing back some of the confidence in the financial system, especially the large banks.Let us lay out a roadmap. If we have a strong government next week, let us take a situation where the RBI and the Finance Ministry agree that there is a stress in the financial system and some action needs to be taken. RBI cuts rates by 75 bps. I am taking the median of 50 bps to 100 bps and the Reserve Bank of India opens a special window for refinancing of liabilities for the healthy NBFCs.Simultaneously, the government announces some resolution plan for the IL&FS with or without a haircut. So there is a visibility that by November or December 2019, the IL&FS problem would have been largely addressed. If these three or four things happened suddenly, you will see the animal spirits coming back, confidence in the lenders coming back, confidence in the banking system coming back, the NBFC starting to do better and the entire outlook will look very different.I do not think the situation is insurmountable and they can be addressed. Yes there is a US-China trade war issue out there which we cannot predict and which is a potential risk to markets not only in India but all over the world. We will see how this unfolds because we have seen to and fro on this topic several times over the last two years. We must also remember that the US goes into elections in 2020 and significant trade war with China will slowdown the US economy as well and might cause pain to the US consumers. So, let us see what comes out of that.I am not willing to bet on that front. Things can go out of hand. These are two very powerful economies playing a game of poker. You do not know how things turn out, but leaving that risk aside, the issues in India can be handled. If they are not handled, on the other hand, you have a weak government or you have a government that refuses to acknowledge this problem. We continue with baby steps of 25 bps RBI cutting rates and then you could have a situation where the slowdown deepens over the next couple of quarters and the market comes off. We will have to see what happens.If you do not have a stable government, will you have a good finance minister? That is again something that we saw back in 1996 where you had a coalition government supported on the outside by the Congress, but you had a very good finance minister who took some extraordinary bold steps during that time.So to me, weak coalition government is not a death knell. It totally depends upon who the Prime Minister is. What kind of a government it is, who is the Finance Minister, what role does the Reserve Bank play in the interim period between the time the government is formed and the Finance Minister is in place to take some crucial decisions, what will the new budget look like -- will all depend on a lot of these factors.Yes, you may have a knee-jerk negative selloff because the market is pricing in a BJP win. For sure, if a coalition government were to come in place or if there is no clear majority and there is a lot of negotiation before the government comes into place, you will have additional nervousness because that is not something which is baked into the market right now. But medium term, you need to look at who is running the government and what are the policy solutions they are offering.The earnings actually are not so bad. The one area where the earnings have disappointed are in the consumer space. There you are seeing slow demand and some discomfort with the valuations. Given that the valuations are already very stretched, and the earnings growth has been coming off over in recent quarters, we were hoping to see a revival as a market place on the whole. But if I zoom out, I do not think any of the financials have disappointed. May be one or two banks here and there have disappointed but financials have delivered in line with earnings.A lot of the manufacturing companies have delivered in line with expectations. It is the consumer facing sector which is facing a problem and there are two parts to it -- consumer staples which is hurting because of poor income in the rural areas and consumer discretionary which is probably hurting because of the tightness in the NBFC system.There are solutions to both and I do not think it is a lost case. I am actually not so worried about earnings because the area where the earnings are lagging is fairly concentrated. It is not across- the-board softness in earnings that we are seeing and the pockets where we expected a recovery is essentially the financials.I am okay with overall earnings environment and earnings outlook with some moderation in consumer names but I am trying to figure out the policy solutions that are available to address both areas of demand -- be it a slowdown in consumer staples as well as the consumer discretionary demand. I have tried to outline what my thoughts are. Let us see what happens.We are unfortunately constrained from taking names. The only broad earnings recovery that is visible today in the financial sector. That is one area where we feel reasonably positive, especially the large banks. There are the smallcaps and midcaps where the correction has been severe over the last one and a half years. Stock prices in some cases are down 50-60% but the earnings outlook has not moderated by more than 10% or 20% compared to where we were one and a half years ago.In effect, valuations have corrected by 30% or 40%. We see a lot of opportunities. It is a very bottom-up scenario where you have to look at individual stocks and ideas, test your investment thesis, the earnings outlook for that particular company and the relative valuations to the stocks’ own history or that of their peers.These are the pockets of opportunity that we are trying to identify. Obviously it is not one size fits all right now. In some earlier conversations I have said that I am positive on pharmaceutical companies as well,where there are some macro worries relating to the lawsuit that was recently brought about in the US. One has to be a little more selective there as well but that is an area where I see there is an opportunity though one has to be very careful about the kind of non-anticipated liabilities that might arise as a result of this lawsuit.But not every company is named in that lawsuit. Are there some opportunities in those companies? I would think so.Second, IT has again started to look better from valuations perspective. That is the third area where I see some opportunity but bottom-up stock selection is the key and that is how the Indian market has always been. It is less about broad market direction. It is more about bottom up stock picking.