Manish Chokhani of Enam Securities is of the opinion that economic recovery would take longer than expected. He still believes that the recent upmove is a bear market rally. He, however, feels it is unlikely for the Sensex to go back to 21,000 levels this year. “Liquidity will flow into longer-term sustainable assets,” he said, adding that the flows were dependent on Dollar and Yuan moves. China may not allow currency to float in the long-term, he said. “The Chinese Yuan may become reserve currency eventually.”

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

Q: Are you cautious now or more optimistic?

A: It depends on the timeframe which you are talking about. It is very hard to not be optimistic about India in the longer-term which is why we have been in the bullish camp almost throughout. But markets have their seasons and every season needs its time to mature and then get out. It is really in that context that this is not the best of times to be bullish given what is happening in the whole world. Having said that if you take a two-four year view, it is inevitable that this country is going to be significantly higher than where we are today. It is just the difficulty of the next 6-12 months where the world has to rebalance itself. That has to play out and which side the shoe drops is what one really has to focus on.

Q: So you don’t belong to the group of people who believe that the trend has turned and it is a firm uptrend from here on and you shouldn’t expect to see the kind of volatility that we saw last year?

A: The way we think about it is that the world is diverging and we have had this whole decoupling debate that in the long run the world decouples and in the short run we remain coupled. What happened last year was a culmination of a collapse which was waiting to happen in the developed world. But the way it played out was like a cardiac arrest. You felt the whole world system will freeze up and therefore movements of money from one party to another party won’t happen. That panic is the panic of October to December where you said will things move and will the government know how to react to it and will the counter party risk come back to play? I think that fear is behind you because all of that has been taken over by the government. A government by definition can’t default. What you have is adjustments in currency markets and bond rates.

Once that fear is gone and those lows are actually behind you, what plays out from here is therefore the next phase where the world says that there is a segment of asset classes and economies which are in a structural bear phase. While they may have bull markets in their nominal currency terms, in real terms you are not going to create wealth over there. There is a part of the world which is going to continue to do well and there is an asset class which is continuing to do well and that’s in a longer term bull cycle. It is just the transition period. What one focuses on over the next 12 months is how does that play out?

Q: We will see another period of coupling before our market starts moving firmly in divergent directions?

A: One hates being prophetic about these things because you always get proven wrong.  But having said that if I sit back and think objectively about it, I would say watch the end game over here because if you think of it, it is Japan, China and the oil countries which fund the US. The US currency is not something that someone wants to accept in the longer-term. At the same time while the oil producing countries can adjust their oil prices up and thereby get away with things, Japan doesn’t have that choice, so be it. Therefore this fulcrum of this trade is going to be what the Chinese do and China to my mind - if you sit and think about it - has no business longer-term not allowing its currency to float because you are running the largest higher purchase scheme in the world, you are lending to someone in a currency in which it is going to be worthless by the time you get eventually repaid and you become fairly rich as an economy, you don’t need to be that dependent on exports and you want your population to start consuming more and more also longer-term and you have built up a fairly good infrastructure. So I would not be very surprised if the mechanism through which this whole thing plays out is an eventual float of the Chinese currency and that then becomes also a reserved currency in the world of some manner and the world fragments then between the Dollar, Euro, Yen and Yuan. That causes a gush into markets of the emerging markets nature but led by China over there.

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