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 10/02/12 Are Mutual Funds betting on Nifty?

Richard Gibbs, Global Head, Macquarie Securities said that there would be a greater rush of liquidity in India and China -- two of the world's leading high beta markets. "I expect we are going to see valuations stretch as that money continues to come in."

He added that the Sensex breaching 21,000 was possible in 2009 itself. "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."

Here is a verbatim transcript of the exclusive interview with Richard Gibbs on CNBC-TV18. Also watch the accompanying video.

Q: What do you think going forward the liquidity situation is? Is there more capital coming in, because we were dealing with a very uncertain fundamental environment, while we made these investments or trading decisions? Do you think capital is still lining up and saying, I don't really care because I can make 10% tomorrow morning? Is that the view at the moment?

A: I think that is the view at the moment. I think there is still a lot of capital out there. We did enter the northern summer holiday period with about 10-15% under investment in global equities. That is the money that was still parked in the cash market. It has to be invested because as the market continues to move, more and more institutional fund managers around the world are getting concerned about being left behind, if you like, and seeing their performance relative to their peers slipping away.

So, I think it is going to be a game of 'me too', if you like, and trying to keep pace with your competitors out there in terms of managing these funds. So, there is more liquidity to come into the market.

On top of that of course, the UK and the US authorities are already indicating that they are going to maintain their very accommodative liquidity and monetary policy support for an extended period of time.

Q: There are two parts to this. One, I as a fund manager maybe under-invested and the other is I am getting brand new money. Which of the two is this because brand new money is just coming back from a bad nightmare in October? Are they ready to put in more money saying, forget about October, I am going to start putting because now the markets are doing 100%? Which one is it at the moment?

A: We are seeing brand new money coming in. But by far the largest weight is of course the money that had been warehoused, if you like, that capital, needing to come back into play, needing to earn a return. Obviously if you are running high cash positions in relation to your balance sheet, it is costing you money, and as the market runs more and more, the opportunity cost increases more and more.

So, basically it is that attempt now coming through on the part of managers to reduce the missed opportunity cost of missing the moves in the market. So, that is going to drive some more momentum, and in high beta markets like the Indian market, yes, we are going to see disproportionate movements in price and valuation.

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