In an interview with ET Now, Manish Chokhani, Director, ENAM Securities, talks about the market. Excerpts:
ET Now: Indian markets are underperforming regional markets. Indian markets are underperforming developed market. Why is that? Do you think we will continue to underperform?
Manish Chokhani: If you recall, the last time we spoke of the six phases of a market cycle. In keeping with that market cycle, which I described as where phase V is the rebound from a collapse after a peak and then you slowly stagnate and go downwards in a phase V and you make a rounding bottom in phase VI before you start the whole phase zero where money is cheap, liquidity is available, nobody wants it. So, we are playing the classic market cycle out where it is a phase VI market where we have in the classic form underperformed over the last Diwali to Diwali, the index is down 15%. You will probably still will make a rounding bottom before you go up and make new highs. For a bull market to start, we are probably 18 months away, but if you were to take a five-year view by when the next bull market would be at its sort of apogee, it is very likely you could be probably 3x from where you are today in a five-year perspective.
ET Now: In the last six months though, Indian markets have gone nowhere. Do you think that the trend will continue and we will continue to trade in the band of 4700 to 5200 thereabouts?
Manish Chokhani: Yes, the price correction maybe more or less done, but the time wise pain, which is why they are called bear markets, you have to bear the pain and it just feels boring to turn up to work, boring to look at the same things again and again. And the market just seems to make 300 point upward or downward moves on a daily basis until the climatic final collapse, which may not last. It gives you a typically rounding W-shaped bottom where you test the bottom, rally up for no apparent reason, go down and retest the bottom again and then come back. It usually is a long enduring process, which is not fun to be in, but just the way as 2007 marked irrational top, we are in the process of forming an extended irrational bottom. The opposite of 2007 decisions are showing up now where whatever you did then, you kind of lost money whereas I suspect whatever you do now on a two-year basis, you would have made money.
ET Now: What are the key triggers which will help us recover or regain momentum?
Manish Chokhani: First of all, we should love bear markets because it gives us chances to buy things rather than bull markets which trap people most often than not. Secondly, when you ask of catalysts for bull markets, you need two or three necessary conditions, one is money has to be really cheap for a bull market to start. Two, it has to be available in so much plentiful abundance that people do not want to take it and, therefore, it is born on scepticism. Third, usually you get a catalyst either in the form of a regulatory change, maybe from the government, or you get something coming out where an important commodity or an important business starts doing well and that spreads a feeling of cheer and easy profit to be made, attracting people back into the whole investment cycle. It is not just true for stock markets, it holds true for industrialists as well and for economies as well.
ET Now: The story of how Indian markets have moved in Samvat 2068, what do you think will affect the scrips? Would it be commodities? Would it be Europe or do you think there is some news from China which could be overbearing?
Manish Chokhani: They are all intertwined into each other. It is the same story. Not that I am the genius here who can spell out exactly how the markets would behave, but the crux of the problem is that the GDP is in the west, which should have been, say, $100, so artificially stimulated up to $150 by provision of excess debt. Now that this debt is unable to be serviced, the GDP needs to shrink back to 100, but no politician in his life will see his country's GDP shrinking from 150 to 100. So, the only way out is you pump enough money in, so that the 100 of actual sale looks like 150 and that excess money flows into, therefore, hard assets and commodities, which is classically showing up in oil markets, which have no reason to be at $110 based on underlying demand or it is showing up in the parabolic rise in gold prices. It is showing up in sugar and corn, which are now getting converted into energy plays rather than consumption plays, which are not sustainable things. If any of these gives way, it is also inevitable at some point, this Chinese sort of miracle, it is seen for what it really is that you spend $4 to create $1 of asset, which does not make a return and we marvel at the infrastructure which is created and do not worry about the banking system. Some of this will come out to play and give us climatic bottoms for world markets and then necessarily in India as well.
ET Now: What is the return expectation from Samvat 2068 considering last year we have seen a loss of about 17.5% for the index?
Manish Chokhani: I do not have year-wise returns. Over a cycle of this market, if I say in five years, the whole Indian index can double its earnings, which is not a very difficult target and the multiples which they are today will not be the same. They will probably be 2x of what they are today. You can make a case where this market would be 3x or 4x in five years and that's what matters.
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Source : ET
ET Now: Indian markets are underperforming regional markets. Indian markets are underperforming developed market. Why is that? Do you think we will continue to underperform?
Manish Chokhani: If you recall, the last time we spoke of the six phases of a market cycle. In keeping with that market cycle, which I described as where phase V is the rebound from a collapse after a peak and then you slowly stagnate and go downwards in a phase V and you make a rounding bottom in phase VI before you start the whole phase zero where money is cheap, liquidity is available, nobody wants it. So, we are playing the classic market cycle out where it is a phase VI market where we have in the classic form underperformed over the last Diwali to Diwali, the index is down 15%. You will probably still will make a rounding bottom before you go up and make new highs. For a bull market to start, we are probably 18 months away, but if you were to take a five-year view by when the next bull market would be at its sort of apogee, it is very likely you could be probably 3x from where you are today in a five-year perspective.
ET Now: In the last six months though, Indian markets have gone nowhere. Do you think that the trend will continue and we will continue to trade in the band of 4700 to 5200 thereabouts?
Manish Chokhani: Yes, the price correction maybe more or less done, but the time wise pain, which is why they are called bear markets, you have to bear the pain and it just feels boring to turn up to work, boring to look at the same things again and again. And the market just seems to make 300 point upward or downward moves on a daily basis until the climatic final collapse, which may not last. It gives you a typically rounding W-shaped bottom where you test the bottom, rally up for no apparent reason, go down and retest the bottom again and then come back. It usually is a long enduring process, which is not fun to be in, but just the way as 2007 marked irrational top, we are in the process of forming an extended irrational bottom. The opposite of 2007 decisions are showing up now where whatever you did then, you kind of lost money whereas I suspect whatever you do now on a two-year basis, you would have made money.
ET Now: What are the key triggers which will help us recover or regain momentum?
Manish Chokhani: First of all, we should love bear markets because it gives us chances to buy things rather than bull markets which trap people most often than not. Secondly, when you ask of catalysts for bull markets, you need two or three necessary conditions, one is money has to be really cheap for a bull market to start. Two, it has to be available in so much plentiful abundance that people do not want to take it and, therefore, it is born on scepticism. Third, usually you get a catalyst either in the form of a regulatory change, maybe from the government, or you get something coming out where an important commodity or an important business starts doing well and that spreads a feeling of cheer and easy profit to be made, attracting people back into the whole investment cycle. It is not just true for stock markets, it holds true for industrialists as well and for economies as well.
ET Now: The story of how Indian markets have moved in Samvat 2068, what do you think will affect the scrips? Would it be commodities? Would it be Europe or do you think there is some news from China which could be overbearing?
Manish Chokhani: They are all intertwined into each other. It is the same story. Not that I am the genius here who can spell out exactly how the markets would behave, but the crux of the problem is that the GDP is in the west, which should have been, say, $100, so artificially stimulated up to $150 by provision of excess debt. Now that this debt is unable to be serviced, the GDP needs to shrink back to 100, but no politician in his life will see his country's GDP shrinking from 150 to 100. So, the only way out is you pump enough money in, so that the 100 of actual sale looks like 150 and that excess money flows into, therefore, hard assets and commodities, which is classically showing up in oil markets, which have no reason to be at $110 based on underlying demand or it is showing up in the parabolic rise in gold prices. It is showing up in sugar and corn, which are now getting converted into energy plays rather than consumption plays, which are not sustainable things. If any of these gives way, it is also inevitable at some point, this Chinese sort of miracle, it is seen for what it really is that you spend $4 to create $1 of asset, which does not make a return and we marvel at the infrastructure which is created and do not worry about the banking system. Some of this will come out to play and give us climatic bottoms for world markets and then necessarily in India as well.
ET Now: What is the return expectation from Samvat 2068 considering last year we have seen a loss of about 17.5% for the index?
Manish Chokhani: I do not have year-wise returns. Over a cycle of this market, if I say in five years, the whole Indian index can double its earnings, which is not a very difficult target and the multiples which they are today will not be the same. They will probably be 2x of what they are today. You can make a case where this market would be 3x or 4x in five years and that's what matters.
~
Source : ET
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