Markets ride on the 'Feel Good' factor

In my post dated 20th February I had tried to focus on the mood of the investors and its impact on stock market movement. Since then we have seen a lot of improvement in the stock indices, primarily due to the positive mood of investors. The positive mood has been broadly created by two events which have been perceived as extremely positive by the market participants. The first event was an investor friendly budget, which articulated the resolve of the Govt. to control the deficit, and the other prominent event has been the spectacular win of the Indian cricket team to lift the world cup after a scrappy start. Investors would be able to analyse the steady improvement of the stock indices as India's campaign progressed in the world cup. The mood of the nation is euphoric at the current juncture, so how does it auger for the immediate future of our markets!

It is my firm belief that these events have given the stock markets an opportunity to extend their gains in the current rally that is unfolding on the bourses since the presentation of the budget for FY 2011-12. The positive news flow from the cricket field has even overshadowed an important negative event: Filing of charge sheet by CBI in the 2G scam. The market will ride on the cricket euphoria in the short term, and may even overshoot levels of 6000 on Nifty and 20000 on the Sensex soon. But the spate of bad news is likely to come back to haunt the markets thereafter. The corruption saga in India and the instability in the middle east is likely to keep the oil on the boil and inflation in India well above the comfort zone of RBI. And these factors do not hold good for the stock markets in the medium term.

Here is how investors should approach stock markets at the current juncture:

• India's growth story remains intact, long term investors should continue to hold on to their blue chips.
• Markets could react from the levels indicated above, and if investors are looking for profit booking this is the level for partial profit booking.
• Markets could temporarily go down towards 5400 levels on Nifty again, after the initial euphoria. Fresh investments should be considered at close to these levels.
• However, investment through SIP mode should be continued irrespective of the movement of the indices.