West's easy money propping our mkts, is it a bubble?

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West's easy money propping our mkts, is it a bubble?

Manish Chokhani, Director at Enam Securities fears that India has been one of the big beneficiaries of West's easy money, which makes it susceptible to becoming a bubble.

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India has withstood the test of times but the muck around the global markets may not allow it to continue like this for a long time. Echoing this sentiments, veteran market analyst - Manish Chokhani, Director at Enam Securities - said printing money and dropping interest rates can't wipe out the mess in the US or European economies. Since there's no short-cut to clear this cycle of chaos and muddle, Chokani feels markets may be in for a rude shock within a year. "It's complacency that you can print your way out of trouble and if that was the easiest way out who stopped everyone, including Bangladesh, from becoming a wealthy country. Life isn't so simple," he said.

Chokani fears that India has been one of the big beneficiaries of West's easy money, which makes it susceptible to becoming a bubble. India doesn't know how to receive this money and there isn't enough appetite for its exports elsewhere, he explains. He lauded government's divestment motives which will build a base for a longer term durable bull market in India. But short-term concerns remains, particularly when the markets are unwilling to correct, and "threatening" to make new highs.

Q: Are you feeling relaxed about the market or worried?

A: The markets are always a place where there is opportunity and there are always things which has concerns. But it's been that kind of a market where rest of the world is a real cause for concern. Locally, there is actual cheer and sentiment is quite upbeat. So it's a mix bag, I cannot swing either side and say it's widely bullish or I am very bearish or anything of that sort.

Q: At the pit of your stomach, are you more worried or more optimistic?

A: As you get older you tend to worry more, you look out at issues (in the)longer-term. By nature I am an eternal optimist. So the pit of my stomach today says India is a bright spot in a real troubled world, but if you are a lotus growing in a pond full of muck, will the muck pull you down or does the beauty of the lotus take you out? And I think that's where we are.

Q: How bad is the muck looking though around us now?

A: Around the world it's a delusionary phase going on that if you take money, just spend, spend and spend. And (if) you have grasshopper type characteristics, then come winter there is nothing to recompensate for what you did for the last 15-20 years. You drop interest rate to 1-1.5% and the world continues as if life is normal and we have started believing that as well that this is the new normal that interest rates in the West can continue at 1.5-2%. A bankrupt country like Greece can borrow at the same rate as a country like India. It just doesn't add up and therefore there is a shock coming. Whether it is three or six months or 12 months away, that only market will decide.

Q: Is something feeling wrong though because even now when you talk to people they are saying what you guys worry about? The Fed will do something now because they are getting worried. More money, more rallies in emerging market equities, commodities and this cycle carries on forever?

A: That's what I am saying. It's complacency that you can print your way out of trouble and if that was the easiest way out who stopped everyone including Bangladesh from becoming a wealthy country. Life isn't so simple; you have to produce a profit eventually and it cannot be that the world continues to provide money to people which are fundamentally debt ridden at 1.5-2-3% interest rates. There has to be a price to pay for that either that or when my son grows up he would have learnt some new economics there and they have discovered fool's gold all over again.

Q: I know the near-term is always far more difficult to predict but if you had to stick your neck out do you think it is going to happen sooner than later or do you think it might blow out into a bubble before realty check comes in?

A: I think the latter is the more likely scenario that governments will do every thing in the West to keep their economies propped up and keep the delusion going as long as possible. And it's people like ourselves who are funding that delusion. So if push comes to shove there is a second round of monetary easing, second round of money pumping, stimulus and so on to keep the patient going as it were. And when that happens again, it's not hard to imagine that the money which goes in creates a bubble in areas which are natural beneficiaries of easy money and of that India would be a prime candidate.

Q: India has already been disproportionate beneficiary of the liquidity - is that why the market is not correcting here. If it falls 4%, everybody gets excited; but it pulls back every time?

A: You are seeing both ends. You can see it half glass full or half glass empty. I think we spoke last really at a substantive way during our last conference which was last November. The market, in a index term, has really done nothing since then. At the same time the market really hasn't gone below the 5,000 mark and which is unlikely to go down. It is this that money has to get allocated into India. We do not know how to receive the money. It is great that the government is going out there and doing its disinvestment. In the is longer term it is going to fix the fiscal problems of our country. It is creating base for a much longer term durable bull market in India. In the short run though because there is lack of appetite in the rest of the world, you do not get the engines of exports firing for you.