SV Prasad, Chairman, Chime Consulting said the pace at which the markets hit 17,000 was breathtaking. Prasad added that ever since liberalization started and FIIs were allowed to invest in India, there has been this volume of money.

He added that if Bernanke reduced interest rates further, the sky is the limit for markets.   

According to Prasad, the market has got more momentum going for it. He suggested that people should stick to their asset allocation.

Excerpts from CNBC-TV18’s exclusive interview with S V Prasad:

Q: The pace at which we hit 17,000, have we run ahead of ourselves?

A: It is breathtaking and almost reflects what we saw in the T20, in some sense. It is just the sheer supply of money coming into this market. Ever since liberalization started and FIIs were allowed to invest in India, we have seen this kind of volume of money. It is almost torrents of money, which is coming in.

Some of the predictions are that Bernanke will reduce interest rates further. If that were to happen, the sky is the limit.

There is always caution that one must keep in mind, because this money is really pushing this market up. There will not be major fundamental changes, as far as the corporate results are concerned.

Economist guru Milton Friedman had said that the real economy is what drives the real economy; monetary policies at best can do only short-term things.

So, while it is definitely a moment of euphoria, as far as Indian stock markets are concerned, one has to pose with caution. We are completely driven by the FII money. We don’t see much of domestic money going into market.

So, these are the words of caution that I would have. But otherwise, as far as the markets are concerned, it is looking very good. 

Q: What has been your call on two commodities-steel and sugar?

A: I have frankly not been a great commodity fan. I would much rather stick to some of the other sectors like telecom. Even at these prices, telecom looks very good. Steel certainly looks better than how it looked before.

Sugar is highly seasonal. It is something that I always keep a distance, because it is also a highly political thing. It is not as much driven by the real economy as much as politics. Wherever there is an industry, which is governed more by political matters, I would rather keep my distance from that sector. 

Q: Tactically, what is your call on the market? Have you increased cash levels and do you think this market has more momentum going for it?

A: I honestly feel this market has got more momentum going for it. My suggestion would be that people should stick to their asset allocation. In the short, medium and long-run, India looks very good. There is no question about it.

Given the kind of money that is coming into India, that helps India more. The other technical reason is that due to the political imbroglio on Sethu Samudran and the whole issue of nuclear power. The government is just not ready to dilute equity, even in companies where they can afford to dilute equity, which will bring in supply of stocks to the market.

Given that kind of scenario, I do not see anything in the horizon. RBI policy is also not expected immediately. Corporate results are still at least two weeks away. Therefore, given that the market in the immediate run looks good, stick to your asset allocation. If you see profits, book the profits; bring the asset allocation back to what one has always maintained. That is my take on the market.

Q: We are starting to see some sterilization of the MSS by the RBI. Some people are talking of a rate cut and inflation is still not completely under control. If something unexpected were to come, would we fall significantly from here?

A: I do not see a significant fall from here, unless some dramatic global event happens. What is driving Indian market today is more than the domestic story. There is nothing new, which the market has not discounted.

The minute Bernanke dropped rate by 50 basis points, the markets have just taken off. The only thing is the whole housing issue in the US. There is a recession, as far as the real housing sector is concerned. At the end of the day, what Bernanake has done is, he has given oxygen as far as that problem is concerned. It has a lot of other implications as far as the US economy is concerned.

It is a wait and watch space, as far as the global market is concerned, especially the US. If you see China, it has not cut down as far as inflation control is concerned.

Inspite of whatever the US is doing, it is an indication and inflation doesn’t seem to be fully in control. Whatever little reduction of interest rates, some of the banks have announced, one has to see the rates they have announced. It is not that we are back to the 7-7.5% range, that’s a dream.

To my mind, in the immediate run, it is more about what happens in the global scene that one has to keep watching more than anything, as far as the domestic side is concerned.

Q: What is your view on the rupee and the technology sector as a whole?

A: The market is realizing that technology stocks have now reached their bottom. The only way, going forward, is to look up.

So, once the other stocks have been taken to their highs, institutional investors are going to look at good leaders in new sectors.

You realize that these are the stocks to look at, especially when some of the other stocks in the Sensex and Nifty are coming into the markets. Obviously, to begin with, any new institutional player from overseas is going to look at the large caps stocks. They are not going come into the midcaps straight away.

When you come into large cap stocks and start scoring for sectors, where there is a more of an upside potential, it has to be tech stocks.

They have a decent share in both the Sensex as well as the Nifty. People are also discounting the fact that the rupee is appreciating vis-à-vis the dollar. This is something that the IT companies have to build in their business model. They are also derisking by going into other markets, like Europe, etc. So, these are some of the reasons I would guess.