Global mkts to remain range-bound; better to be cautious: Sanger

The global markets will continue to be range-bound on back of disappointing tone from the central banks, says Arvind Sanger, managing partner at Geosphere Capital Management. The European Central Bank (ECB) on Thursday slashed record low interest rates to pump massive sums into the banking system. Central Bank’s going into the negative rates is not helping growth, he says adding that important thing to see is whether the central banks are pushing for structural reforms or not. Sanger further says that: “fundamental growth that emerging markets and China is facing hasn’t washed away yet.”"Markets have lost faith in central bankers ability to wave magic wand," he says.Market is now risking a short term pull back than a rally, Sanger adds.Sanger says that the Indian market is following global lead. While there is underground reforms going on like the UDAY scheme and Bankruptcy Law, more traction needs to be seen for confidence to return to the domestic market, he says. Some green shoots are visible in certain sectors in domestic market, which needs to be broadened to other areas as well, he says. He is neutral on the market, but advises cautious while buying into it. Global market will continue to weigh on India and thus, one needs to be a selective buyer, he adds.Below is the verbatim transcript of Arvind Sanger’s interview with Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: Anuj, Sonia and I was just discussing the reaction to the ultimate fire power used by Mario Draghi was so negative. Should markets take the view that we cannot any longer expect central banks to deliver, have we seen some near-term peak in global markets?A: I have said it before on your show and I believe this is now for the last few months, it is only for the last three months that the markets have lost faith in central bankers being able to wave their magic wand of quantitative easing (QE) or negative interest rates. We can see diminishing returns when Draghi talked in testimony a month and a half or so ago about European Union (EU) is going to do whatever it took and which it did today the markets went up for couple of days and euro weakened for a couple of days. When crude oil did the same thing in Japan a few weeks ago the market went up for a day and euro for a day and trade didn’t even last two hours, so I don’t think I would make a distinction. It is not like the central bankers are running our bullets. The problem is that bullets are running out of effectiveness and that is an important distinction. The central bankers going into negative interest rates are not having growth affects and therefore whatever they are doing now is becoming less important. I think the question is what is going on the broader economy in terms of, you were just talking about this before, talking about are they doing anything structural to help the economy in terms of labour reform, in terms of other structural reform that is certainly a big challenge for Europe, that is certainly is part of the challenge in Japan in terms of third arrows as it used to call in Abenomics. It is certainly a challenge in India is that what is going on structurally to help the economy improve. I think India is easiest structural levers to pull. On a global basis the structural problems are much tougher to handle. Therefore, I think global markets are probably going to remain range bound and probably if there is any more rally based on anything positive coming out of Fed next week which is probably going to be just a pause I don’t know if they are going to give you anything in the statement which is hint at any reversal of their stance.So, I think that the markets are clearly range bound and we had a big rally over the last couple of weeks. I think we have a risk in the short-term of a pullback more than a further rally from here._PAGEBREAK_ Sonia: I take your point that central bankers' moves are not as important to stimulate the equity markets and it is more structural reform. In that context for the Indian markets, are you noticing any structural improvement at all that has warranted the 600 point move on the Nifty from its lows or is this just a pullback rally that will eventually get sold into?

A: So far Indian rally is in line with global rallies, so it is hard to say that it is because of India unique factors. If India were the only market rallying, we could say that but globally all emerging markets have had a sharp bounce back. So in that sense right now I wouldn't read too much into it.

I think there is stuff going on underneath the surface whether it is on the banking side, trying to figure out a structure to make the banking sector more profitable or some of the bankruptcy laws being talked about or it is Ujwal DISCOM Assurance Yojana (UDAY) scheme or couple of other measures that have been talked about but I think we need to see more of a big bang on some of these things or more traction on these things to get confidence that India is going to separate out from global because India is also suffering from global slowdown, you have seen the effect on India's export slowing down, you have seen some headwinds, so we need to see some signs that there is structural changes that are helping the economy, helping business confidence, helping loan growth and helping economic growth. We have seen green shoots for a while in few sectors but we need to see broader on that and I think the government has some good thoughts in terms of infrastructure financing using of balance sheet measures but it also needs to deliver on some of the Budget management capital raising that they have talked about. So I think there are a few important things that are under government's control that are important to watch.

Anuj: Let me get back to the global markets. What are the odds that the global markets at some point will retest the February low and in hindsight we will know that but maybe this was a sharp bear market rally?

A: I definitely unfortunately believe that this was a bear market rally and whether or not we test February lows, is hard for me to call but it is quite likely that we head back towards those levels because the fundamental growth challenges that most developed economies are facing and China is facing, have not been washed away. The one good news if you can take it from global factors is that China, some of the more dire extreme fears have subsided. So in that sense there is a hope that maybe China may do some stimulus and make things less terrible than what people were expecting but having said that I still think that global growth dynamics including China growth remain challenge. So I think we remain in a somewhat choppy challenged market and it is going to remain a market in which one needs to feel very much bottom up focus rather than try to play a big macro rally, which I suspect is going to be very hard to find this year.