Stock markets continue to exhibit exuberance despite disappointing signals on the economic and political front. It is argued that FIIs continue to pump money in Indian bourses and will continue to drive the markets upwards. But, Indian economy continues to be in the grip of a severe crises of Governance. Unfortunately, among the contenders of power we have outfits that have contributed to the mis-governance in their role as opposition. Among the leaders in contention to lead the next Govt. we had an 'amateur' and an 'arrogant, and recently we have added an 'anarchist' to the list, adding to the woes of the economy. Whosoever amongst these gets elected to the throne is likely to face stiff resistance from the other two leading to a prolonged period of lack of governance. This is likely to delay the process of economic recovery which the markets are expecting immediately after the General elections.
RBI is set to announce its 3rd quarter monetary policy on Tuesday, amidst slowing economic growth and stubborn inflation rate. Those expecting a fall in interest rates may be in for disappointment as RBI at best may hold the existing rates. GDP continues to flounder under the 5% mark continuously (GDP for Sept. quarter was recorded at 4.8%, mainly supported by good Agri. growth, while IIP continues to trade in negative territory), although there has been a marginal decline in inflation rate due to a fall in vegetable prices. FIIs may be looking at the economic data closely, and would reverse their stance on Indian markets at any time, leaving the small investors in a quandary.
Small investors are advised to exercise extreme caution, and avoid making fresh entry in the markets at these levels. Markets may correct significantly in the run up to the elections as volatility in the markets shoots up. Keep an eye on the 'Nifty Vix' as it may once again attempt to go past levels of 20 in the coming days. It may not be a bad idea to book substantial profits in the stocks from IT and Pharma (although long term growth prospects remain intact) and other sectors that have run up sharply in the past few sessions. Investors may wait for a 10-12% correction from the current levels to initiate fresh investment (These levels could be around 5500-5700 on the Nifty).
