As expected, markets have shot up on the back of a congress debacle in the recent state elections. Indices have entered a new zone while the rupee too has strengthened on hopes of a pro-development government coming to the centre. Both the BSESensex and NSE Nifty have touched a new high.
However, not many in the analyst community feel that there is enough steam left in the market. The results over the weekend have largely been in line with expectations, says UR Bhat of Dalton Capital Advisor in a TV interview. But with headwinds from US taper, quarterly results and possibility of more populist measures from a desperate government, analysts are fearing that the markets may run out of steam soon.
Even as the indices are touching new highs, there are only two stocks in Sensex and Nifty that have crossed a 52 week high today -- Maruti and Hero MotoCorp. Out of Nifty's 50 stocks, we have only stocks which are within 5 per cent of their all time high. This shows that few stocks have taken part in the rally this time around.
There is enough room on the valuation front, with Index PE trading near the long term average. In other words, we are nowhere near the 'bubble valuation'.
So what's the road ahead? Is there enough steam in the rally or are we likely to see a fall or consolidation.
With elections out of the way, markets will now focus on RBI for the action it will take in mid-December following better than expected GDP numbers. Chances are, with inflation refusing to come down, governor might leave interest rates as they are.
However, some economists are expecting a small rate hike by the governor. Unless the governor surprises with a bigger rate hike, market has already discounted the expected policy moves.
The next big news that can impact the market is US tapering. Many in the market, including the finance minister and RBI governor feel that the country is in a much better position to handle US tapering and claim Indian markets will not be as rattled as it did earlier. However, if world markets fall, Indian markets might also follow suit.
December quarter results too are expected to keep market volatile. Being a festive season, numbers are expected to be better, both in India and globally, which can provide more fuel for the rally.
Finally, on the economic front, the state election results means that government would give out more doles (even as its freebies policies have been rejected in Delhi where Food Security Bill was implemented). Tough decisions are unlikely to be taken, but the market has discounted these facts.
In short, with hope turning into reality, but for a US taper, we are lined up for a bigger rally till the general elections, after which all bets are off.