Markets may rally higher next week as exit poll, election results unfold

Updated: Saturday, May 10, 2014, 10:04 [IST]

Indices

It was a sensationally rally on Friday, which stumped investors, particularly the sheer per centage of the rally. The Sensex has now hit a new peak of 23,049 points on frenzied buying, as investors have clearly concluded that there is likely to be a new stable government at the centre under Narendra Modi.

The exit polls next week late on Monday could set the tone of what happens until Thursday. Should exit polls suggest around 260-270 seats for the NDA, there is no telling where the Sensex could go. It's extremely difficult to hazard a guess with some analysts saying that markets could rally to as much as 7500 points on the Nifty.

Of course, in times of over exuberance, analysts tend to go overboard with projections. In the event of the NDA government getting seats less than 220 seats, there could be some reaction in the markets for sure. Until the election results are out one can continue to expect a rally.

What should investors do?

It's always difficult to time the market and no investor has bought at the lowest and sold at the highest levels. If you go by fundamentals, it's clear that the markets have run ahead of themselves.

Even if we have a stable government in place economic recovery is likely to take time. Moreover, inflation is likely to be elevated and interest rates are unlikely to fall any time soon. To compound worries, there are reports that rainfall is unlikely to be very good, which could hamper agricultural production and push prices higher.

Against this background, investors who have made money should at least partially book profits. There is no telling where the markets could head, should the election results disappoint. You could probably re enter at some time when the markets stabilise.

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