See ranged mkt ahead; focus on stock-picking: New Horizons

With the market perched at 17,000 levels, is most of the juice out of the rally? In an interview to CNBC-TV18, Madhav Bhatkuly, Director of New Horizons Investment, said the markets would be range-bound for a while — the Sensex may range between 12,000 and 18,500 and the Nifty may range between 3,500 and 5,500, he said.
“This is very reminiscent of what happened in India from 1992 to 2003,” Bhatkuly said. “Markets were range-bound from 4,600 after the Harshad Mehta scam to 2900 in the year 2003. Was it possible to make money? Of course, for sensible, diligent, heavy stock pickers. Was it possible to make enormous sums of money? Yes, [in that period] Infosys went up 100 times, HDFC Bank went up 25 times while SBI did nothing. If you were bullish on two wheelers and bought Bajaj Auto, you would have made no money for a decade but you would have made incredible amount of money in Hero Honda.”
Here is a verbatim transcript of the exclusive interview with Madhav Bhatkuly on CNBC-TV18. Also watch the accompanying video.
Q: Are you convinced this is a new bull market or you are skeptical?
A: If I look at the screen, stock prices, and the smiles on peoples faces, it certainly appears like one. But there are many characteristics to this move which suggests that it may not be. Fundamentals suggest that for this move to sustain we would continue to need monetary stimulus or some dramatic shift in fundamentals. I think we may be far away from that.
If I had to make a bet, I would say that rational central bankers would probably try and tighten money supply with the advent of a sustainable economic recovery.
Q: How soon –– that is the question because there is a lot of people believe that it is not happening for the next 6-7 months atleast?
A: So 6-7 months, in the short term, markets were driven by perception and liquidity, in the medium term it is reality and fundamentals. So, if it happens one year down the road and we are into the zone of another bubble and the index is beyond 21,000, I can bet you that just as 2008 this will end in tears too. But if Central Bankers around the world demonstrate sanity then I think this will be a sort of muted market rally which will be range bound for several years to come in.
You are in a situation right now where literally everybody is looking at consumer price index (CPI) and wholesale price index (WPI) in India, to determine whether we are on the throws of inflation and therefore to tighten money supply. The last problem in the world has nothing to do with CPI, it had everything to do with asset price inflation.
Have a look at what has happened in the last 2 months –– real estate prices in Mumbai, Delhi, London, New York, Peru and Costa Rica and every single place you have seen a synchronous up move. It suggests that Central Bankers will start looking beyond the traditional CPI and therefore might tighten sooner than later.
The last G20 meeting doesn’t suggest so. But it is very likely that going into the beginning of next year we will probably see first signs and in India you might see it sooner.
Q: However, central bankers have been very sensitive to how equity markets and asset prices have moved. Would they risk pricking this bubble at a premature stage in December-January-February which could have the effect of bringing the market down completely?
A: I think the choice is very limited. First, look at what has happened. The world needed two units of monetary stimulus. I describe monetary stimulus as steroids, and the central bank gave us 25. The money supply within the system increased even more because GDP growth and demand for credit declined vertically. So if a certain portion was needed, more than that was given. Since GDP growth and credit declined, we ended up with even larger portions which have ended up in assets. So even if you have a robust, sensible recovery and demand for credit picks up for creating industrial infrastructure, you will see liquidity tightening anyway.
Q: You won’t bet on the last leg of the rally which takes it to a new high – is that possible?
A: That is possible and that is a function of liquidity being rich and saying no divestments happening, if divestments happen then liquidity from markets or secondary markets get sucked into the primary markets. Therefore, it ends up moving to the government instead moving into the secondary market stocks. So that is completely possible.