Don't see global liquidity ending soon: Credit Suisse

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Don't see global liquidity ending soon: Credit Suisse

Neelkanth Mishra, Head of Equity Strategy India, Credit Suisse says the current market rally is a recovery from last year's underperformance.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Neelkanth Mishra, Head of Equity Strategy India, Credit Suisse says the current market rally is a recovery from last year's underperformance. "I think fundamentals have completely been ignored," he told CNBC-TV18.

Foreign institutional investors have turned bullish on the Indian markets and continued to pump in dollars in Indian equities. The FIIs have invested USD 4.5 billion in the last 44 days.

According to Mishra, a reversal of this fund flow will stop the ongoing rally in equities. However, he said, the global liquidity drive is not going to end soon .

Mishra expects bond yields to go high, which in turn, can put pressure on the markets.

Below is the edited transcript of Mishra's interview with CNBC-TV18. Also watch the accompanying video.

Q: The screen is looking completely flooded with green the last few weeks but you are a bit cautious. You think this is not the real thing supported by fundamentals?

A: No it is not. We put out an order few weeks back which showed that this is very tight mean reversing rally. So far the stocks have performed in line with the declines they saw in the year before December 20. If you plotted a scatter plot of the stock performances from November 2011 to December 2010 and on the Y axis the performance from December 20 to now, one would see a very tight scatter plot. We have done scatter plots for all the bear market rallies, 16 of them since 1995. Also the first phases of the bull markets that we have seen and we have never seen such a tight rally.

So, there is nothing which seems to have changed on the ground. Therefore the only information that investors are working with is the prior price performance. This is not just true in India. The markets fell most last year. Egypt, Turkey and Brazil have done best this year. This trend is also visible in currencies; the currencies that fell most last year have done the best this year. This is a very global phenomenon.

It is very tempting to ascribe Indian reasons to it. Sitting here is very hard for several thousand people working in the Indian industry to feel as if they don't matter. As of now this is completely global rally. I won't describe any Indian reasons to it. This is a global liquidity rally and whenever that ends it will start reversing.

Q: Your point is taken that fundamentals still have not reached up to the kind of optimism that we are seeing in stock prices, but what could stop this liquidity in your eyes that is characterised or has been fundamental to such a powerful global rally?

A: Let me put a global spin to it. The only way the high debt levels in the Western economies can be handled is by devaluing the currencies. After the LTRO seems to be successful, the euro started to weaken and the Fed is feeling confident enough that they can start pushing down the dollar again. This is because if you make the dollar too weak then the Europeans get into too much trouble and then that worsens the US economy as well. It has to be an orderly devaluation of these currencies versus each other.

There is money printing going on in Japan, you have seen 50 billion pounds happen in the UK, we have seen LTRO two expectations end of this month. The Fed is quite seriously talking about QE3 and building up expectation around it. There is no reason to believe that the pumping of liquidity will end.

So far fundamentals have been completely ignored, the order cancellation for some power equipment companies inventory write down for some steel companies, very sharp rises in NPAs for some banks, so despite results being bad and fundamental weaknesses, the stocks have not reacted. But at some point of time they will.

There are some very serious developments that are going to happen in early to mid March. It is at that time, we will see at least some differentiation starting to happen. So far even globally there is absolutely no differentiation, but in terms of liquidity I see no reason why we should expect a sharp decline in liquidity availability globally.