Indian fundamentals weak, rally won't sustain: Sanger

"Both the ECB and the US Fed have given clear statement which suggests that they are willing to do whatever it takes to prevent any kind of a major slowdown developing from here. So that has given people some confidence and that has created the risk-on trade," Arvind Sanger, managing partner, Geosphere Capital Management told CNBC-TV18.

However, given the bleak global economic outlook, this rally may not sustain for longer.

Meanwhile, Sanger is not too bullish on the India because fundaments continue to remain weak due to policy inaction.

Below is the edited transcript of Sanger’s interview with CNBC-TV18

Q: How much more do you think this global risk on rally is good for? Do you think it is sustainable over a few weeks now?

A: It is hard to tell how far this can run, but both the ECB and the US Fed have given clear statement which suggests that they are willing to do whatever it takes to prevent any kind of a major slowdown developing from here. So that has given people some confidence and that has created the risk-on trade.

It could continue, but on the other hand the economic fundamentals underpinning the overall outlook for both Europe and US. Also, China and other emerging markets (EMs) remain weak. So it is hard to tell how much further the risk-on trade can last, but sooner or later we are going to have to see economic fundamentals follow for the risk-on trade to continue.

Q: If global risk-on continues and liquidity continues to be abundant, do you see the possibility of the Nifty taking out this 5400 top and moving to significantly higher levels over the next few weeks?

A: I would say that India has benefitted from the same risk-on trade on a global basis where some of the lagging sectors, some of the lagging stocks, some of the cyclical sectors and some of the EM stocks have moved up. So you know, if this liquidity trade continues and the Indian Nifty is towards the higher end of that 5000-5400 range, it could certainly move above that.

But unfortunately, India specific fundamentals do not look to be getting better. So you know, even if it broke through for a little bit, without the fundamentals turning, it would last long. The real challenges here are both from a monsoon stand point, we have had a disappointing weather and therefore food inflation and other inflation items have started to rear their ugly head in a way that is somewhat concerning.

It also causes RBI policy to stay on hold. We continue to wait for the Indian government to come through with some policy action and at this point it is becoming a ridiculously long time that we waited for something to happen and nothing has happened yet. The risks are more, that even if you get a rally it will be a rally to sell into rather than something that causes a breakout without the fundamental picture turning around.

Q: How are you tactically positioning yourself in India right now? Are you raising cash levels with every rise in the Nifty?

A: Well we certainly are moderately invested and at this point we are picking special situations and we are trying to reduce our exposure to anything that would count on any meaningful government action using any rally.

So to do that, because at this point we have become somewhat disenchanted with that, we have a few bottom up stories, but we are cautious that the market - like we are treating equities elsewhere, has had a decent run so we don't want to get too bullish at this point given that the fundamentals are not supportive of that.

Q: Aside of global liquidity a lot of the Indian rally has been predicated on expectations that the new finance minister will take steps over the next few weeks. Where are you benchmarking your expectations?

A: I have no idea at this point. I have heard that the PM when he took over as the FM for a brief while, made some very definitive comments about wanting to revive the animal spirits and get the confidence back. We have the current FM when he took over; again he made some very positive statements. So it is clear that they understand what needs to be done.

I am just not sure if the imperatives of the electro-politics in India allow for those actions to be taken. Therefore, at this point, since I have no great expertise on what the collation dynamics with in the government are and their ability to take decisions, I guess the latest waiting for argument from India is that you know wait till after this monsoon session of parliament and something will happen.

But, Indian politicians unfortunately have been good at finding excuses, the next event could be state elections coming up in Maharashtra, Gujarat or you know whatever other elections that might come up on the horizon. So I 'm not sure at this point.