Malcolm Wood of Morgan Stanley analyses the current market scenario in India with a broader emerging market perspective. He says that India is showing signs of medium term development, and that India should trade at higher multiples viz-a-viz other emerging markets. In his opinion, the liquidity situation in India is good, but is slightly receding.

Excerpts from CNBC - TV18’s exclusive interview with Malcolm Wood: 

Q: Are you bit surprised to see our markets at 13,700?

A: Certainly; I am surprised to see India at 13,700. It has been a great rally, but I think that goes for the region. We have been bullish on the regional market but the spread of this rally has surprised even us.

We had a Index target for the region we thought was comfortably in double digit returns for next 6 to 12 months - and we are almost there in about six weeks. So things have certainly surprised in terms of the speed of moves.

Q: Is there something different about movement in India this time - is it part of an emerging market move? When you talk to people, are you seeing optimism different from past rallies because it is not fizzling out like a lot of people are thinking, arguing the valuation metric?

A: It is right to say that India has been true to form. It has been a high bidder market, so global markets have been running hard and India, as a high bidder market, has outstripped them. So in that sense it has been true to form.

Another factor that has been similar to the past has been the liquidity driven nature of this rally. We have had the US Feds step to the side, a lot of Asian central banks have stepped to the side as well, and in that context, liquidity that is looking for a home is obviously migrated to places where it sees premium returns, and India is one of those.

Which brings me to the other explanation, that is India is moving to a higher degree level of growth. That would be the secular positive view school and there are certainly a lot of people falling in that category - investors interested in real estate, infrastructure all those sorts of areas that will be necessary to drive India’s growth in the medium term.

Q: Are those areas you are looking at more carefully in India - real estate and infrastructure?

A: One of the things that we saw at the Asia Summit last week was what I call a trickle down which is interesting. In second and thirds tier cities not just in India but in China, Indonesia and even in the Philippines we are seeing interest in micro credit going into the rural and regional parts of Asia. 

There is also the whole micro prepaid low cost mobile phone phenomena, of course the ever cheap consumer durables which are benefiting folks living in India and China and Indonesia as well. I think this is a regional phenomena. Obviously India is one of the best ways to play this social trickle down effect, but it is regional.

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