The Hindu Business Line : Upsides may not be high in immediate future: Kotak Mahindra

Mr C. Jayaram of Kotak Mahindra Bank believes that local liquidity is the real wild card for the markets, and if that begins to tighten then it could be a source of worry.

He adds that many private banks in Europe and West Asia are allocating more funds to India, therefore the FII interest in India continues to be very strong.

Excerpts from CNBC-TV18's exclusive interview with C Jayaram:

You have seen maniac moves, is it beginning to look stretched again on your valuations?

The last time the markets went off so sharply, the pace at which it bounced back had surprised everybody, because most people expected that it would consolidate at around 7800-8000 levels before it made the bounce back. The fact that it has made the bounce back so quickly seems to suggest that this could be the level at which the market will probably consolidate, while the upsides from this level in an immediate sort of future may not be high.

My sense is that the market is looking to consolidate around these levels.

Liquidity has been the wild card in this entire story, what is your sense of how December will shape up?

From a foreign perspective, I would probably say yes, except obviously the second half of December, which would be vacation time abroad. Otherwise, it would be pretty stable from a flows liquidity perspective.

The real wild card is local liquidity and in the last couple of weeks, banks have been raising their short-term deposit rates. So there is tightening in the local system and again if we analyse historical trends of our markets, there is a very strong co-relation between liquidity and market flows.

Aside from the pace, has anything else concerned you about this 1000-point run up again?

Not really, sceptics have begun to become believers over a period of time and each time the markets bounce back smartly, a few more people cross the road. There is pretty much a strong consensus that around these levels the market could consolidate and sort of make further moves.

Would it be one of those years where end of December we again hear of big inflows in January and the market might move up as it did last year?

A lot of that is speculation driven, because it seems to be the smart thing to believe that the flows will come in January. Hence, one can sort of confront the market by taking positions in December. But I am not so sure if it holds true any longer.

Is there anything, which could scoop the market that can come from New Delhi over the next couple of days?

Honestly no, because fortunately the exit polls got it right this time and to that extent, the Bihar factor had already been played in by the market. Some of the other more controversial things like the Volcker report already had its repercussions. I don't think there is anything spectacular, which will happen in Parliament and which will change the market dramatically.

Is the primary market looking healthy as well, when you look at the kind of issues that are open now or are going to open up, do you see a lot of potential there?

In primary markets, certainly the pipe is bursting and there are a huge number of issues in the pipeline. They are all dependent on the fact that the secondary markets are going through a good phase. Hence, the first quarter of next year is expected to be good. In a sense I would argue that is a derivative of the secondary market and the moment secondary markets start looking weak, we will find some of these issues being pulled back.

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