Good times! Liquidity to be high for 3-4 mths: Rashesh Shah

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Investors are euphoric on Indian market's performance this year. Chasing away the bears of last year, it managed to rally almost 11% in January alone while foreign investors seem to be hooked on the Indian shores now. Experts feel that this is one of the best time to trade and make money.

Rashesh Shah, Chairman and CEO, Edelweiss Group thinks that the rally is driven by global liquidity and it is likely to remain high in the next three to four months.

In an interview to CNBC-TV18 he said, "I think optimism is returning. There was extreme pessimism about India and the world last year, especially in the October to December quarter. Investors are getting slightly more positive on India now."

Also read: Above 5400, bears may get excited, says Violet Arch Cap

Below is the edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: What kind of mood do you expect to see at your conference, given that we have had such a sharp rally in the last five weeks?

A: I think optimism is coming back. I think in the last year, especially the October to December quarter, there was extreme pessimism about India and the world and all. It had swung so badly to the other side that we are seeing optimism coming back. It's still cautious optimism. But I think investors are getting slightly more positive on India now.

Q: Where can the market go in the near-term?

A: I think currently everything is being driven by global liquidity. Since the advent of long-term refinancing operation (LTRO), we have seen that liquidity in the world has eased off a lot. There is a huge amount of liquidity now. Liquidity is affecting sentiment and the asset prices and the potential earnings out of that.

As long as LTRO is underway and for the next three-four months, we should see good global liquidity. India will benefit out of that. Along with that, the India factors like interest rates and inflation and some government policy action are all showing signs of optimism now. So, from where we were in calendar 11, I think with liquidity and improvement on the India front, for the next three-four months, you can afford to be optimistic now.

Q: Any specific pockets that you hear this liquidity is being drawn towards? You guys have panels on issues like infra, power and coal. Is money interest picking up there?

A: In this first surge of liquidity, we are actually seeing a lot of interesting things in overbeaten sectors. So, if you see all the sectors, which actually performed very badly in the last year, are the ones which have been the beneficiaries of that in this year. So in a sense there is an inverse correlation between sectors that did very badly last year and the ones which have done very well in the current year. So, there is a rebound that is going on. But after the rebound, the interest rate sensitives and the liquidity sensitives will do extremely well.

Q: What do you expect to hear from the companies because you have got 70 companies attending? Stock prices are one thing fueled by liquidity, but do you expect companies to say that things bottomed out late last year and actually business sentiment and business execution have improved?

A: I think companies are hoping that execution has improved because there is some government action. I think the extreme inaction of the last year is starting to become a thing of the past.

However, I think we should keep in mind that corporate capex is not yet starting to happen. So, one of the things I would constantly watch out for is the capital expenditure cycle. I think if things stay the way they are for the next three four months, if there is a rate cut in March or April then we do feel that companies are reconsidering starting the corporate capex cycle and start looking at new project.

Q: Do you would think that the low that we formed in October December quarter for our market will hold as a low for the last bear market?

A: I think currently it appears so. On the global front, liquidity is easing off a lot of the stress. On the Indian front, the rupee has bounced back because current account deficit is also coming under control.

Our estimates in Edelweiss show that gold imports have come down by almost half and even that is reducing the pressure on the rupee. The NRI flows have improved so that is also helping the rupee. So, I think on the rupee front there is optimism.

On the interest rate front, there should be optimism. Liquidity is still fairly tight. But with RBI open market operations, we should see liquidity should also improve atleast by April.

Even on the India factors, there is some room for optimism. If the election results come out in March, it will give additional spur. We think the next three-six months should be more a revival and a recovery than going back to the old lows.

Q: What specific policy issues do you think institutional investors are seeking clarity from the government?

A: The theme that we have in this conference is about the apparent conflict between politics and economics. All over the world and especially in India, there is a feeling that good politics is not good economics and good economics is not good politics. So, our theme for today at the conference is how do we marry economics and politics? How do we make good political decisions, but still keep economics in mind? Government has a large role to play on that. Investors want to see the mindset of the government and the government bodies and the government companies on how they are trying to marry economics and politics.