Paul Armstrong, CIO, ING Life Insurance talks to Priya Kansara Pandya on the current market rally and the road ahead for our markets.

What is your FY11 Sensex target?

A range of 22,000-23,000 seems probable to us by the end of FY11 or early FY12.

But do you expect markets to move up so rapidly to those levels just like we moved from 18,000 to 19,000?

The pace of rally is any one's guess. The current run-up is much more of liquidity driven rally with foreign inflows, and our markets are more related to strong global financial flows than to the relatively poor global economic scenario.

The fear of double dip has receded, which has further improved sentiment. Also, many local investors have not participated fully given their high cash positions. Should they begin to participate, their cash would also support the current rally.

Do you expect mid-caps and small-caps to take over the next leg of the rally?

Mid and small cap stocks have already outperformed the large cap space by quite a large margin. They will continue to be an important performance contributor.

After the success of recent Initial Public Offers (IPOs), how confident are you about the revival of the primary market? Why?

Success of future IPOs will continue to depend on company specific factors and realistic pricing. We remain cautious about the IPOs, as in a rising market as some issues will begin to get mispriced.

After auto, FMCG and banking stocks, which other sector will drive the next leg of the rally?

Indian growth is more to do with the domestic consumption and continuing rural development stories. Thus, we continue to remain bullish on the consumer-led sectors, including the ones mentioned. Agriculture theme should also continue to do well given good monsoon and robust rural demand.

Do you think banking stocks to be in demand despite the rate hikes?

Banking sector's growth is linked to overall economic growth, and thus the sector will also do well if economy goes strong. Indian banks are well capitalised and have sound asset quality.

Moreover, after the recent interest rates increases, I feel that the Reserve Bank of India (RBI) is getting towards the end of the tightening cycle.

Why has IT index touched its 52-week high when global economy is so volatile?

Despite concerns in the developed market, business demand momentum for the sector remains pretty strong. We expect the companies to continue to report robust financial performance even in the second quarter, though margin pressure would be something to be looked at.