Don't expect the narrow US market rally to last much: Geosphere Capital

In May, the Nasdaq 100, which is regarded as the global tech benchmark, recorded an impressive 8.4 percent increase. This marks the index's strongest performance in the month of May since 2005. Year-to-date, the Nasdaq 100 has performed even better, delivering a return of 31 percent in 2023 so far. In comparison, the broader US benchmark, the S&P 500, has also seen positive growth, but has slightly underperformed the Nasdaq, with a 9.5 percent increase year-to-date.

However, Arvind Sanger, the Managing Partner of Geosphere Capital Management, during an interview with CNBC-TV18, offered caution regarding the sustainability of the narrow market rally in the US over an extended period. While recent times have shown positive momentum in the market, he emphasised the importance of exercising caution. Sanger pointed out that such rallies may not be sustainable in the long run, and he believes that this current rally has progressed significantly ahead of itself. He further highlighted the need for the broad-based m arket to join in for the rally to be more sustainable.

Sanger backed his cautionary stance by pointing out signs of an economy that may already be in recession. For instance, despite lower prices, petroleum consumption has experienced a decline of around 2.5-3 percent. Based on this observation, he expressed skepticism about the longevity of the narrow market rally if the economy indeed enters a recession.

One of the notable points raised by Sanger was his expectation of a rate cut in the United States when a recession takes place. With concerns looming over the sustainability of economic growth, Sanger believes that the US Federal Reserve will likely resort to monetary policy measures to stimulate the economy during a downturn.

Additionally, Sanger expressed his belief that the US Federal Reserve might opt for a pause in rate hikes. Given the current economic conditions, he argued that a period of stability in interest rates could be beneficial, allowing the markets to find their footing and facilitating sustainable growth. Sanger's view aligns with the notion that gradual and controlled adjustments to interest rates can be a more prudent approach for the long-term stability of the economy.

“I have been on the camp that think that the US Federal Reserve take a pause right now because they have to give it a little bit of time to see how things play out,” he said.

Shifting his focus to India, Sanger provided insights on the country's earnings season, noting that it has been decent with a positive outlook for the fiscal year 2024. This optimistic assessment signifies Sanger's belief in the resilience of the Indian economy and the potential for continued growth.

“If you are a medium-term to long-term investor, India is clearly in a sweet spot. If one takes a 12-24 months view, there is a lot that can go right,” he said.