now that yields are up investors should make a balanced allocation to shortterm income low duration and dynamic bond fund categories lalit vij tells et wealthhow would you sum up the current market volatilityafter a very strong rally in 2017 the markets became expensive compared to their historical valuations the markets do not go up in a straight line and after a very strong run up last year the markets were due for a breather in this situation global volatility in equity markets from endjanuary also impacted india with fiis selling in february while this was accentuated by local factors like the issue of tax on longterm capital gains on equity and bad debt problems at psu banks etc we think the impact of these will be temporary this year will see higher political activity ahead of the 2019 general elections however with a substantial run up in the past year even with an improving micro level picture the market is unlikely to have any pe multiple expansion in 2018 the markets are expected to reward stocks where earnings growth is likely and predictablehow credible are the chances of a global tariff war playing out what will be its effect on indian tradeat present it does look like other countries are negotiating with the us for exemption from the us tariff and not taking tariff actions of their own if there are no further tariff actions by the us we think that the chances of a trade war would be low however investors need to keep a watch as these are dynamic events which are difficult to forecast and the situation can changewhat do you make of the rot in public sector banks will it hold back the economys recoverypart of the problems that psu banks have on the npa side is due to their exposure to the infrastructure sector which the private sector banks by and large avoided i do not think it is fair to tar all psu banks with the same brush as some of the larger psu banks have done relatively better in this situation hence if there was a substantial demand recovery for credit we expect the larger psu banks and the private sector banks to meet most of the demandis recovery in corporate earnings truly underwayearnings for the second and the third quarters do indicate that consumption demand is strong and that companies are bullish about growth while capital expenditure on infrastructure sectors continues as reflected in the strong demand for cement and steel we are also hearing of select companies talking of adding brownfield capacity on the manufacturing side in the absence of any major surprises like a surge in energy prices or a weaker monsoon we do expect earnings to do better in 201819what are the sectors or themes that interest you at this junctureit is not about themes per se but we think the markets will reward companies where they see earnings visibility and valuations are reasonable in our portfolios we