We need a roadmap in the budget regarding how we will return to fiscal responsibility. Income could be generated through sources like divestment, 3G auction, better tax compliance, or improving the productivity of spending.

For retail investors, a tax incentive for investment in infrastructure funds would be welcome. Such a tax will help mutual funds mobilise more funds. It will create a virtuous circle whereby household savings get converted into equities for infrastructure.

Investors are currently bullish on infrastructure and banking. What is your opinion?

In the near term, the infrastructure sector looks a little expensive because PE (price to earning) ratios have expanded. The need to build infrastructure is clear. The government will have to take the lead in pushing infrastructure development. So you have visibility for power, steel and construction companies because a lot of money will be spent on infrastructure.

Banking is a proxy for the economy. If the economy is doing well, this sector does well. Non-performing assets decline. Banks' ability to borrow cheaply on deposits and lend at higher rates increases. Generally in developing markets the banking sector provides returns that are a multiple of the growth rate of the economy. We are bullish on banking.

Since valuations are stretched in infrastructure, should investors wait for a correction?

No, don't try to time the market. Leave that to fund managers. Invest regularly for the long term and don't behave like a trader. Do your asset allocation and do not be overweight on any one sector, and you will generate good returns from your portfolio.

... contd.