Bull run to continue: ENAM Secs

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Manish Chokhani of  ENAM Securities said that the markets around the world seem to have made up their mind that there will be a Fed rate cut from the US. He believes that if that does not happen, then there is a spot for trouble.  

 

Chokhani added that there may be consolidation in the market and we continue to be in a bull run.  

 

Excerpts from CNBC-TV18's exclusive interview with Manish Chokhani:

 

Q: We have not cracked too much, but everybody seems to be waiting and watching for September 18. How do you think markets are set up for that event?

 

A: It is probably right that people are not wishing to stick their neck out before September 18, because inevitably markets around the world seem to have concluded that there will be a rate cut coming from the Fed and have effectively priced that in.

 

On the small chance that it doesn't happen, markets probably are in some spot of trouble.

 

The other event to watch out for is all the noises one has started hearing from the coordination committee, on the political front between the UPA and the Left. That does not seem to be going too well. So, you are probably looking at elections earlier than one thinks, sometime next year, in the first half for sure. The question is whether it will be in the first quarter or the first half.

 

Q: Are you are saying that you can't build the case, for a whole lot of upside, from here, may be bit more downside?

 

A: It is the kind of market where there may be consolidation. There is no point in anyone sticking their neck out. Although, India isn't particularly expensive, one can't build a bear case for sure and we continue to be in a bull market.

 

However, to be very bullish right now means you must have a clearer picture of what lies six months out. More than events externally, it is a bit of a feeling of what is going on locally now, which is starting to come in. Externally, whether it happens in this Fed meeting or the next, it is almost inevitable that rates will fall in the Western Hemisphere. It is almost inevitable that liquidity in some form will be pumped back into the system by the central banks and the dollar will remain under some pressure.

 

Until one sees oil or the rupee weakening, or substantial collapses in industrial metal prices, you can't really build a bear case and even the great recession word that people have started using in conjecture with the US. So, if external events are not that alarming, it is really the domestic scene, which will probably start occupying centrestage.

 

Q: What is the sense that you get of the flows? We saw a couple of billion dollars go out in August, but the last few days have been pretty good. Is the money skittish now or pretty confident?

 

A: The flows to India are undisturbed. There is substantial money still waiting to come and substantial money has come anyway. It is also evident by the way we are doing IPOs. There is currently one very large one, which we are involved in, which is open and doing fantastically well. So, there is no shortage of money out there for India and that is the clear message.

 

I do not think we should worry about flows from India reversing in a rush or money not being available for India.

 

The issue is of this quarter, because that is when you will sort out what is going to happen to the US and the time frame for our political realignments to take place. Almost inevitably, as you step into calendar '08, some time in Jan-Feb, we will sit and realize we are heading for a Rs 1,000 earnings in the index.

 

Even if we stay where we are currently at 15,000 odd, the market doesn't look expensive, interest rates almost inevitably will head down in India.

 

Thirdly, the last quarter is the quarter when we get serious inflows into our insurance companies over here, which have been a large pool of support to the market. So, I can't really make a scary case heading into Q1 of calendar '08. It is really the next three months the market has to learn to cope it. It is not a clear direction either way right now.

 

Q: What is your own expectation on Sep 18 and how do you think emerging markets, including us, will move before and after that?

 

A: Well, emerging markets have also broken up into what one calls the so-called domestically driven or BRICs type economies, which seemed to be on longer term growth trajectory.

 

The so-called US dependent economies like Taiwan and Hong Kong will suffer indeed if there is some problem in the US. A proxy for that you can take is the BPO sector in India and watch the fallout of that if volumes were to dip over there.

 

The emerging markets of India, China, Russia and Brazil tend to be a lot more isolated and within that one can build the case for India being relatively that much more isolated.

 

Interestingly, lot of these markets are being driven by domestic money. If you really have to be scared about an emerging market, it has to be China because you are trading on 40 type multiples over there.

 

The earnings that have come through companies over there have come through from stock markets trading and profits over there. If we have to see some corrections in emerging markets, the one to watch out will be China, much before the fear comes into India.

 

A lot of people we meet talk about pulling money out from China and pushing it towards India, even in their BRIC funds.

 

Despite saying all that, the feeling is that the liquidity is going to gush back because of rate cuts in the West, just to keep themselves afloat. That gushing back of liquidity, at some point, will lead to mania even bigger than what one is seeing in China currently. Probably, China will even make greater highs and India as a corollary will also be significantly higher at some point next year. That is how finally this bull market will topple, because of excesses, but currently you don't see that over here at all.

 

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