Mumbai: The rally in share prices that began in March is not the beginning of a really long bull market, says Manish Chokhani, director of Enam Securities Ltd. In fact, the smart money is still not coming into India, says Chokhani. Most investors are waiting for a correction before entering the market, he said in an interview. Edited excerpts:

It has been a bit of a pause globally for the last few weeks. Which side do you think is it going to break?

It is a difficult period because when we met the last time, we spoke about how people will try and take it to the end of a range and, post-elections, we would go up slowly to 16,000 and then start wondering if we are ahead of ourselves.

That’s what we have been doing — wondering for the last few weeks.

Yes, and in the world as well, the currencies have reached a point where the euro is at 150 or thereabouts and the all-time high was 160. The yen is near an all-time high, so it is showing signs that currencies want to break, markets want to break and no one wants the range to break...

My sense is, though, at some point, once this quantitative easing thing ends, which is imminent in October-November, we’ll start seeing pressure on interest rates in the world and this sanguine approach that we all have, that there is ample liquidity, maybe, will get questioned. So you will have a hiccup. Having said that, (in the) long term, the trend lines are very clear that you will have an extended recovery in the developed world and you’ll continue to have growth in our parts of the world.

Enam Securities director Manish Chokhani.

Of course. So no one can time that. If we did we would all be Warren Buffett and one always hates to forecast.

Is it likely that we have a blow-out which takes the market to 20,000 and crude to $100 per barrel again?

Crude touching those levels is unlikely because there is already so much of crude sitting in tankers all over the world. So I suspect in the short run crude will probably fall... Also, the rate tightening cycle in India is probably until January-February of the next year. What that means is between now and December-end, if liquidity continues and you have no compelling reason to sell the market, it is possible you can break out on the upside over here.

Last time when the market went over 20,000, it looked like a clear bubble in terms of valuations. Would this time be the same case as well or have earnings caught up enough in one-and-half or two years?

At 16,000, it is not yet a bubble. It is pricey but then in a world of 2% interest rates it is bound to remain pricey. If you get to 20,000, we’ll be really expensive and it will look like a bubble because earnings haven’t caught up yet. Remember, we are predicating a lot of this on what happens in the following year and whether we have a big earnings recovery and most people, including our house, have like a 20% earnings estimate for the following year, which is 2011...

What’s the trouble phase for the market? Is it the first bit of 2010 when the answer to whether liquidity will tighten or not will be answered?

It is both because if liquidity tightens while fundamentals are actually improving very steadily, (it) is not such a bad thing because it is consistent then with a bull move that the real world has appetite for money and we are happy to give better valuations to companies. What’s likely though is that most people in the world have built this model that the West has recovered and you are having a V-shaped recovery over there, which I think is a bit delusionary. The patient surely has been taken into the ICU (intensive care unit) and then out of it but the patient in the West has to go through a large period of what one would call physiotherapy and in that period if we have already built in expectations that patient comes out and we start sprinting again or we start playing golf again—it is not going to happen. So periods of disappointment are ahead for the market. Also, lot of the bull case right now is built on ample liquidity, which also, I think, we’ll get into a spot of bother. So my bet is first quarter next year is a very difficult patch.

So it is really a confidence issue and if you think of it, our market really broke its first range of 14,000 when the government came in because the expectation was that now we’ll have policy and we’ll have a sustainable trajectory of growth in this economy.

Before I talk about the government and how global investors have read it so far, from a stock market point of view where is the liquidity coming in from?

Normally, you would say that yes, if it is retail, it is normally the last leg of liquidity, which is why I am a bit worried about what lies ahead and also this year. If I look at just the client list from abroad, it is not the so-called smart money which is coming in and most what I would call smart money, absolute oriented money, whether from abroad or from locals, has actually missed the bulk of the rally and most people have then been trying to clamber on to the bus. So it has actually been allocative money—now whether it is from a retail investor or an allocative investor—I have seen a mix of both. It has come from some sovereign funds as well.

There has been a lot of ETF (exchange-traded fund) money, which is retail money, which has come. But it is surely not what I call deep-pocketed smart money and which is (why) my gut says that this is not the start of a really long bull market because at complete lows in bear markets, stocks get pocketed and go into really strong hands, which then sit tight on them for three-four years, and this time I sense it hasn’t gone into hands like that.

And most people are waiting for the correction where they want to be the first person out and it will be just one single trade—everyone wants to sell at the same time and there is no one on the other end.

Is that good or bad that this smart money is still not invested? Could it buy the dips and therefore support it or is that not the right way to look at it?

Money is money. So as long as it goes up and you’re invested, you don’t complain who has brought it. But all that tells me is that I still believe this is a very powerful bear rally which is happening and one will probably see a second round of a dip in the world or may be an extended period of disappointment at which time out of frustration, disappointment or just that it is taking too long, stocks rotate and they go into deeper and stronger hands and that sets the stage for a much more sustained upmove.