Vetri makes a couple of clear observations: (1) We are in the 6th year of global bull market in equities and despite significant developed world central bank support, economic growth remains below par for the globe. This is not a very comforting thought given the run-up in valuations. (2) On Indian equity markets, the signal from valuations is quite unambiguous. Valuations are at a 22 %+ premium to the long term average based on 12m trailing P/E. Historical patterns suggest that in the very short term, this may not significantly impact returns but over a 1-3 year period the risk posed by mean reversion is significant. Read on to understand from Vetri's straight talk, why investors need to exhibit more patience rather than irrational exuberance right now.

WF: Is Yemen really a key issue for global markets to worry about, or is it just the catalyst for a correction induced by deeper concerns on US market valuations, slow global growth and the imminent commencement of US interest rate hikes? How do you see global markets over the next 6-12 months?

Vetri: I don't think Yemen is a key issue for the global economy or markets. The fact that the market sold off on the day of the news may be mere co-incidence. There is no proof to conclude that Yemen was the cause or that the opposite is true. The key trend over the past 3 years has been the stark outperformance of Developed markets compared to Emerging markets. Weak global growth and a strengthening dollar have been negative for emerging markets versus developed markets. There are exceptions - India being one of the most notable exceptions over the same period and particularly in the past 18 months. US monetary policy is set to change course sometime this year and earnings growth appears challenged in many parts of the world. We are in the 6th year of global bull market in equities and despite significant developed world central bank support, economic growth remains below par for the globe. This is not a very comforting thought given the run-up in valuations.

WF: After being among the best performing markets of 2014, India is now in the bottom half of performance for YTD 2015. Is this merely reflective of global concerns or do you see concerns about the tepid economic recovery reflecting in domestic stock prices?

Vetri: I suspect that there are many reasons for the relatively tepid start to the year. In our view, the strongest headwind to medium term performance of the market is from the elevated level of valuations. The risk is compounded by the possibility that the recovery in growth and earnings takes longer than expected.

WF: What has gone wrong with the earnings growth story? Analysts are now asking us to be patient for a few more quarters and suggest that robust growth is only likely from FY17.

Vetri: Forecasting the future is always fraught with uncertainty. You only need to see the track record for FY11-FY15; earnings forecasts have consistently been revised downwards for the past 4 years. Having said that we would not be surprised if as when a recovery takes hold; the forecasts of earnings growth are comfortably exceeded on the upside-as happened during the previous upcycle. The government has taken several policy steps to improve growth, but it will be a slow process and investors will have to be patient.

WF: Is it time to be cautious and take some profits from Indian equities or is it an opportunity to buy into this dip? What is your 12 month outlook for our market?

Vetri: The signal from valuations is quite unambiguous. Valuations are at a 22 %+ premium to the long term average based on 12m trailing P/E. Historical patterns suggest that in the very short term, this may not significantly impact returns but over a 1-3 year period the risk posed by mean reversion is significant. Investors should be conscious of this adverse possibility.

WF : Where do you see value today within the Indian market? How are you positioning your equity portfolios to align with current market and economic realities?

Vetri: Given the potential for a recovery in economic growth over the next few years we would like to maintain a pro-cyclical exposure in our portfolios. Currently, our preferred areas based on valuations and growth are financials and consumer discretionary. Industrials are not preferred given the elevated valuations and likely slow recovery in the investment cycle. In general, we think there is more alpha potential in getting the stock selection right, considering the present valuations and how these are getting reflected at sector levels. We are still guided by the health of the balance sheet and ability of the companies to weather a challenging growth environment in our stock picking. Selectively, we have, however increased exposure to companies where we perceive attempts to address balance sheet issues and changes in strategic direction. Our portfolio is more balanced today reflecting the bottom up conviction on specific companies.

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