Election results a blow to UPA: Markets to remain subdued

It is Holi mood on Dalal Street and red colour is splashed all over - on the broker screens/ investor books. The state assembly electoral hustings have dealt a huge blow to the UPA Govt., and have cast serious doubts about its ability to complete its full term. Equity markets, after the initial euphoria, have given a thumbs down to the results. The correction in the markets that was already underway will gain further momentum in the short run. This correction is a blessing in disguise for the investors who are sitting on cash to take entry into the markets at lower levels. As indicated in my last post the worst is over for the markets, and a bottom has been made at the level of 4531 on the Nifty in December 2011. The next downturn is likely to create a higher bottom around 4700-4900 levels on the Nifty. This would lay the foundation of a grand and sustained bull run in our markets, which will unfold in the New samvat 2069 starting on March 23, 2012.

The negative global factors are also playing a negative role in pulling down the markets:

• Greece and some other Euro zone countries are again hogging the limelight, a default seems imminent.
• Escalation of Iran- Israel conflict is keeping crude prices on the boil.
• Rupee has weakened by around 5% and this will add pressure on the fiscal management by the Govt.
• Slowdown fears in China have spooked the global equity markets

In the above circumstances money is likely to move out of risk assets and may move to save havens like US treasury and precious metals. Equity markets have the potential to correct up to 10% from the current levels. But this presents a good opportunity to accumulate blue chips at reasonable levels. The next important triggers for the market would be RBI policy on 14th and Union budget on 16th March. Investors are advised to start putting money in equity markets around 5000 levels on Nifty (16400 on Sensex) to reap rich rewards in the next 12 months.

Wishing you a 'Happy Holi', may the colours of Holi spread happiness in the lives of investors.