This will be a cracking Diwali

Indian markets have gained 9.2% in the month of September. Can you believe that?

No, I find it very difficult to believe, but it is there in front of us. It has happened. And apart from this huge surge of liquidity that has found its way into financial markets in general and the fact that a lot of equity money has been shifted to from other markets, there is really no other rational, logical reason for this kind of rise in one month.

India is a good market, India is a great growth story, but I personally find valuations across the board extremely rich - not just India, but across the equity spectrum. So it is purely liquidity-led rally which is continuing and this party could continue even further.

Does it seem like it’s going to top out anytime soon, or come Diwali and we will be welcoming a new high?

That could happen. This is not something that can be rationally explained. There are huge levels of exuberance. There is a lot of liquidity and lots of money has got printed across the board - most of which has found its way into the financial markets. With the dollar depreciating, the carry trades are starting all over again. So a fresh wave of buying is coming in. People are exiting the dollars. They are going to gold, they are coming to equities. So the question we need to ask ourselves in order to answer your question is: What will trigger a reversal of liquidity from financial markets in general and from equity markets in particular? This is a billion dollar question.

What strikes me is unless a lot of this money finds its way into productive assets in the US and in Europe, this flow into financial markets is likely to continue. A move away from financial markets into productive assets will happen paradoxically only when those economies actually show signs of improvement on the ground, which regardless of what regulators there may say is not very apparent. But it could happen. It will happen at some point of time. Is that one month away? Is that six months away? I do not know. But to answer your question, it is not going to happen before Diwali. So yes, this will be a cracking Diwali.

September historically is always a good month for global equities and for Indian equities. But in October, we have got more downticks and less upticks, isn’t it?

Different interpretations to history as we saw yesterday with the Ayodhya verdict. But the point here is that when a correction comes, it will be brutal, there is no doubt about it because the surge is largely on the back of liquidity. So people have to sell because they need to take money out of the market. That selling will also be aggressive. The question is: Is it likely to happen in October?