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Ramesh Damani, Member, BSE, said the global rally in equities of the last few years seems to have ended for now. "The huge liquidity pumped in by Fed is causing the markets to rally, but problems in the US are not over. We hope to see the end of the pain, but market will test the patience of investors."

The run up in the last two days seems like a technical rally as of now, he said. "A lot of factors are still uncertain. We still see a lot of excesses in the system in many sectors, which needs to be removed."

According to Damani, rising inflation and advance tax numbers are not good. "This shows that the markets are not out of the woods yet."

Excerpts from CNBC-TV18’s exclusive interview with Ramesh Damani:

Q: When do you think will this pain end or is this just a relief rally?

A: It will be nice if it was the end of the pain. But markets are rarely so simple. We have had four years of a wonderful bull run and the market will now test the patience and convictions of all investors. This is a technical rally. It could take the market up to say the Nifty levels of 5,000 and maybe the corresponding Sensex levels. But at some it would peter out. It is not that it is going to go right back down and test the bottom. I think it will remain in a range. Then they will have to watch data like inflation, which is probably going to be bad, and a lot of other indicators for the market to look at. My sense is that this is just a technical rally at this point.

Q: What would convince you that we are about to form a bottom and are slowly getting out of the woods?

A: You could make a case for the B group, all the smallcaps and midcaps are already decimated. You are finding good value opportunities there. We tend to look quite aggressively at that space.

But if you look at the broader A group stock, the BSE 100 index for example, I can see huge examples of lofty valuations even at today’s prices, be it the power or realty sector, or financial companies. So, the bull markets always have a lot of excesses, and the excesses have to be rung out of the system. The market does not spare anybody, any stock or group any time. It will take the prices up for a while but you will have to pay on the downside for the excesses that have been committed on the upside.

A number of stocks in the last few days are down 20-30% from their peaks because of leveraged position unwinding or because of excess valuations. As the market starts to pick the wheat from the chaff, they will still find huge pockets of excesses in the A group. With interest rates not going to come down because of high inflation numbers and the advance tax collection being very poor this quarter, if you look at what the property companies paid, I think there is a sense that we are not out of the woods yet.

Q: How do you read the global situation? There is a feeling that maybe the US is not falling any more despite bad news and probably we have hit an intermediate bottom globally, which is giving us some confidence in the near-term. Do you read that as a positive or do you think that is also a technical pullback globally?

A: The first question is that the global bull market that we had in almost all asset classes and particularly in equities is over globally. That is pretty much the sense I have. The US has been surprisingly strong. But there is a strong tradition in the US when the Fed lowers interest rates as aggressively as they have done, then money flows to equities. As you are well aware the markets move one way or the other, they usually go up or down. It is hard for me to imagine a scenario in which the Dow would make a new high. It is almost 11-12% from its all-time high.

So, if it cannot go up further, it will then at some point go down. I would remain bearish just because of the huge liquidity that the Fed has pumped in, virtually sandbagging the markets with liquidity, which is pumped in this rally. Over a longer-term basis, there still remain problems in the US market.

Source: Moneycontrol.com