Ride the stock market rally with caution: 

Last Friday, 9 May, the Indian stock market took participants by surprise when it ended the day on a strong note with the benchmark S&P BSE Sensex gaining about 3%. It continued the impressive show when it opened for trade on Monday and ended the day with gains of 2.42%. The rise on Friday was attributed to rumours that exit poll data, which was being compiled by different agencies, showed big gains in the favour of Bharatiya Janata Party (BJP) in the ongoing Lok Sabha elections. At the time of writing, C-Voter exit polls were pointing in the same direction. Actual votes will be counted on 16 May, and results will be declared the same day. But it seems that the stock market is not willing to wait for results and wants to price in every possible positive news coming its way, irrespective of authenticity and track record. So, is the stock market running ahead of its time?Even though the stock market has run up over 15% in the past 3 months, experts believe that it will scale even higher if the BJP-led National Democratic Alliance (NDA) forms the government with the existing partners. However, whether the market be able to sustain at those levels is an open question that not many are willing to think about at the moment. “The market is factoring in all the good stuff at the moment,” said Dipen Sheth, head (institutional research), HDFC Securities Ltd. If the BJP is able to form the government with strong numbers on its side, markets could go up 6-8% in the short run, he added. But at that point, it would have moved ahead of fundamentals.Others, too, agree that markets could go higher. Vinod Nair, head, fundamental research, Geojit BNP Paribas Financial Services Ltd, argued that a strong mandate in favour of BJP-led NDA could take the CNX Nifty to a level of 8,000 in three months, which means a gain of about 14% from the present level. Sudip Bandyopadhyay, managing director and chief executive officer, Destimoney Securities Pvt. Ltd, was of the view that the Nifty could go up to 7,500 but cautioned that it may not sustain at those levels and some of the gains could be taken off.

Experts say the basic issue is that Indian markets are still driven by foreign institutional investors (FIIs), and if the NDA is unable to form the government, the FII sentiment will be hurt. If they start selling, there will be no one to buy and markets could crack significantly.

GAURI NkESARWANI.

PGDM: 2nd sem

Source: livemint