Expect liquidity to return to Indian markets in next 3-6 months: Nilesh Shah

At a time of uncertainty, where are the opportunities and where should investors invest in?

There is enough opportunity in the market. Probably the best time to buy is when everyone else is selling and we are seeing that kind of selling in the Indian equity market. The indexes have corrected, valuations are reasonably fair and probably the Indian equity markets today provide far better opportunity than most other asset classes for investors to look into.

What in your assessment would trigger a snap out from this range that we have been stuck in?

Let us fast forward our sense to some point of time in future which may be three months, six months, or nine months away. There will be a time when our inflation rates will peak off because commodity prices worldwide are falling down.

Crude has declined from $120 to current level. Inflation coming down will provide RBI the ability to cut down interest rates. If the interest rates start coming down, there will be more investments into capital assets and then investments push the growth up.

There are very few countries in the world which are in a position to provide monetary and fiscal stimulus to their growth and India distinctly stands out. As Indian growth recovers, people will try to invest in India as valuations are very fair. All these things will result into breaking of this gap or breaking of this range which we are witnessing for the last about three to four months.

For any bull market to thrive you need three things -- lots of government action, high liquidity and low interest rates. Currently for the Indian markets all three factors are missing...

Definitely. That is why we are where we are today. However, three months, six months at some point of time in future, liquidity will come back to the system either from the domestic sources or from the global sources and today when we are looking at liquidity, it is frozen in real estate and gold.

So some allocation out of those frozen liquidity back into financial liquidity, financial assets like equities, bank deposits will continue to occur. We could also see flow of liquidity coming from developed markets, the global markets. We have limits open for infrastructure debt funds. We have limits open in Indian equity markets. We have limits open on foreign direct investment.

So all those things put together can bring liquidity in and we could be in a scenario similar to the beginning of 2007 where money was flowing in from the domestic as well as global sources.

Liquidity today is tight, but three months, six months down the line who knows it can improve significantly. The second thing which you talk about is lower interest rates and today the consensus is emerging that RBI is somewhere near its peak of rate hike cycle.

They are trying to contain inflation by increasing rates, but as inflation starts coming under control courtesy the base effect, falling commodity prices globally, it will result in RBI probably cutting interest rates somewhere towards the second half of 2012.

So interest rates which are right now on the rising curve could be either on the stable curve or on the falling curve three-six months down the line. 

PGDM 3rd Sem