While the economy continues to be in doldrums equity markets are celebrating! Much of the euphoria stems from the fact that a majority of the analysts, including foreign brokerage houses, have heavily pinned their hopes on BJP returning to power at the centre. The markets have already discounted a victory for BJP, hence any hiccups to BJP's hopes in the run-up to the elections will lead to increased volatility in the markets. The outcome of the state polls on 8th December may spring up a few surprises as well.
Nifty, despite flirting with the lifetime high several times, has so far failed to clear the summit of 6357 in the current rally. Nifty is currently moving in a tight range of 5950-6300. The markets are looking expensive at the upper end of the range and are likely to break-out on the downside after the initial euphoria. The valuations of leading sectors like FMCG & Pharma & IT are looking extremely stretched at these levels. Long term investors are advised to avoid fresh investments at the current levels. The risk reward ratio will turn attractive only after a break-out below 5950 levels. Although the chances of markets seeking sub 5000 levels on Nifty are ruled out, we may see levels of 5500-5600 during the last quarter of FY 13-14. These levels would be a good opportunity to accumulate quality stocks from the sectors of the next bull run. The next bull run may be led by Energy (Oil-Gas, Power, Unconventional energy such as Wind/ Solar power), Infra & Development (Roads, Ports etc.), & Financial sector.
For the coming month, the focus will continue to be on the outcome of state elections in India, RBI Monetary policy and the QE tapering announcements by US Federal reserve. The movement of the Indian rupee will also influence the market direction to a great extent. The voters may be in the process of re-defining the ABCDE of Indian polity. The 'Aam Admi' could spring up a surprise leading to a 'Debacle' for BJP and 'Extinction' for the Congress. I would prefer to wait on the side-line as election expectations lead to a shooting up of 'Vix' due to increased volatility.
