Q: You track the rupee very carefully. Are these conceivable scenario sub 35 kind of levels do you think the stock market can survive that?

Jayakumar: Let me go back to the evidence in countries that are significantly, at least in the mid 80’s more developed than us. The Japanese Yen went from 300 odd levels down to 120 levels after which it remained roughly the same for the 15-20 years. The economy took 3-4 years to absorb those kind of aggressive revaluations.

It’s happened in the Sterling in the same period, September 25 1985 the Plaza Accord. It was 22 years ago, a lot before many a people here were in the market. I remember that a group of nations got together and said we need a weaker dollar and the weaker dollar at that time was something that was only conceivable and conceived against the other developed currency baskets.

Subsequently in the 90’s it became against the Asian currencies and now in the new set of currencies. The Brazilian Rial till a year and half ago, was at high 2s, toady it’s at 1.73. It has had 22-24% correction and is still going strong.

The bank buys everyday and the market is scaling new peaks and to the best of my knowledge, the only problem is the adjustment factor. How long does it take for people to adjust to the fact. I have no doubt in my mind what is poison for one is not necessarily the case for somebody else. The technology sector in the US is looking extremely good because the same weak currency there is spilling off. So if Infosys or the tech sector were to reorient themselves to say that let’s start reworking the numbers, I have no doubt in my mind that you will probably hear that.

So to answer Jhunjhunwala’s question, it may be a case that today we are making new highs and new lows on certain tech stocks while the index is making new highs, but maybe this composition will change. Maybe momentum players or the companies that he is talking about with no fundamentals and futuristic earnings are making new highs, maybe that will change.

One very important thing, in every leg of this journey up from 3,000 we’ve had different animals taking us up next leg. You had cement initially, then infrastructure then banking and then IT, etc. After 14,000 IT has given way to other people. I think there are new horses for new courses and the paradigms are shifting. So I will not stick my neck out and say it will be the same set that lead us up. Capital goods has, yes project imports have become cheaper and a number of things have become cheaper, import of foreign goods for local consumption have become cheaper. So there are positives as well.

Yes, competitiveness is an issue, steel prices are an issue as the rupee becomes even stronger. But I think the adjustment factor is an important issue. If it happens in a moderated way, which the RBI is trying to do, maybe it will pan out well. But if the rupee rashes to 32 in the next 6 months then I think we have a problem. So the whole idea here is to try and moderate it, which is not an unholy objective. But unfortunately, you can’t moderate flows.

Q: Have you also been spoting excesses on the screen for the last few weeks, have some of these movements worried you a little bit?

Sharma: No, we love these excesses, that’s where we make terrific money, and that is where experience probably helps in the sense that, you have seen it before so you are careful to take money off the table sooner rather than later. But it’s good in a manner of speaking because the hedge funds love these kinds of things and as a securities house, we love these bouts of volatility.

The problem is that’s not necessarily good for the average investor on the street. There have been absolutely situations wherein it had simply become way too easy to make money, specially the last four-eight weeks. Obviously that never ever lasts. Anybody who believes that can last has obviously never been in the market long enough. We saw January-February and March 2000 when it was, today was not of the same order, but that was crazy as well when almost everything with a story around it was going up 50%-100%-200%. We’ve seen something along those same line on a senile basis. There’s terrific amount of froth out there and these tides can turn just as quickly as they have risen.

So my sense is that we will see the markets sell off. More importantly, we will be right in the middle of a pretty bad global macro environment, we think equity markets are headed for a far uglier course going forward.

So given all that, I would be very surprised if India were to stand apart from all that. We will participate, but we will relatively outperform the market on the global equity benchmarks. But other than that, I don’t hold out hope in the next couple of months for the markets to be up in an absolute term from the 20,000 high watermark, I think we will be trading lower.