Sensex could scale 21000 in 2009: Macquarie

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Sensex volatile; RIL, Tata Steel, BPCL, Unitech top losers Nifty touches 5000: What are experts expecting now? Nifty hits 5000 for 1st time since May 23, 2008 ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

Q: Where would you think the next big moves would come? Which would be the outperforming markets? Would it be the US, would it be China or India? Could you rank the markets where you suspect there is going to be a greater rush of liquidity? We are beginning to see some kind of resistance in commodity prices. They have already become underperformers. How would you read that segment?

A: I think it will be the high beta markets that are going to run the most, that will overshoot by definition and that will be India and China. They are the two world's leading high beta markets as they stand now, liquidity is driving that level of variability as well and driving it higher. So, I fully expect we are going to see valuations stretch as that money continues to come in.

I think the low beta mature markets face more of a restraint, if you like, in relation to the surges in valuation because of the big structural burdens that they still carry and which are really imposing themselves upon prospective earnings and valuations that are being applied by analysts.

On the commodities side, I think we are seeing that we have had a pretty solid rebound from the end of the world scenario that emerged from September of last year of course. And that is being underwritten by much more resilient domestic demand growth in China and India. We have already seen a fair run-up in commodity prices recovery, and now starting to see a bit of a pullback because what investors are now asking themselves is, is the run-up we have seen in production merely a restocking process going on in relation to the stocking out that occurred towards the end of last year and the beginning of this year, or has it really got legs and solid foundations in so far as it being increasingly tired and driven by improving levels of intrinsic demand in the global economy.

Q: What do you think will be the upshot? Do you think that this rally will have more legs even in the commodity space?

A: Yes, I think it will have more legs, the commodities space. There is no question that in China and India growth, no matter the variability in some of the forecasting at the moment is going to continue to surprise on the upside. There is no question in China that potency of the fiscal stimulus package has been far greater than most people thought it would be and we would have concerns on the part of the Chinese authorities about over-stimulating sectors of that economy.

In India, I am still fairly convinced that that economy is on a very solid upward trajectory in relation to its growth profile, and that any reform initiatives that come from the reelected Congress coalition would be favourably received by markets and investors and will actually push the economy up into a higher growth plane.

So, I think everything is heading in the right direction in relation to those high beta emerging markets and that will support quite substantial capital flow.

Obviously the key variable factor continues to be the performance of the US dollar and the extent to which exchange rate movements and variable movements in exchange rates would cause some dampening impact on those capital flows.

Q: Since you are speaking about India with such depth, do you expect that 21,000 on the Sensex or 6,300 on the Nifty will be scaled in 2009 itself?

A: I think it could well be. If you look back through history, obviously India and China don't have a lot of history in relation to being major global markets in terms of these capital flows, but if we look back to other markets when they were in their formative stages, yes, we tend to see quite substantial overshoots in relation to valuation and capital inflow, and I suspect that the climate is developing towards that end of the spectrum in relation to the Indian market and the valuations that we will see.