As BJP Gets The Mandate Dream Run To Continue

It was another day of confusion for the investors as to celebrate the new high of the markets to get cautious as markets are scaling new highs every day. To put the figures in perspective, the Sensex today advanced by 556 points to close at new high of 23551 while the Nifty managed to breach the psychological levels of 7000 to close at all time high levels of 7014.

This has been quite surprising for the investors as there were again no clues on which the market surged so much. Rather in last two trading sessions, the markets have actually witnessed an up-move of 1200 points on just the expectations making it to the centre with a clear majority.

The exit polls declared by the different news channels indicated that BJP would be getting anything between 250 to 300 seats. This would mean that, there would be a stable, thinking and a reformist government at the centre. The markets had actually discounted the 240 seat mandate for the BJP and as the figures are well above the expectations, there is a possibility that the markets may open gap up today.

Key macroeconomic data including the consumer price inflation (CPI) data and the index of industrial production (IIP) numbers were released yesterday post market hours. The CPI-based inflation for the month of April came in at 8.59%, marginally higher than 8.31 % a month ago. The data is at a three-month high with the food inflation inching to 9.66% against 9.1% (MoM). The rural inflation came in at 9.25 % against 8.89%, while the urban inflation was seen at 7.69 percent versus 7.51 percent (MoM) respectively.

However, the March IIP brought in some respite by shrinking at a slower pace of -0.5 percent as against -1.8 percent in February. The poll had predicted -1.66 percent for the IIP data. The data has been revised to -1.8 percent from -1.9 percent for February. The overall IIP data for FY14 came in at -0.1 percent versus 1.1 percent year-on-year.

The hike in diesel prices by Rs 1.09 per litre also made to the news headlines. This will only add to the inflation making the matter difficult for RBI. The food inflation is already rising and the diesel price hike would only add to the woes as transportation cost increases.

One positive factor was, INR strengthened against the USD and managed to breach the psychological levels of Rs 60 per USD. It is likely to touch the levels of 59.70 to 59.50 mark soon.

If we take a look a global data, there are quite a number of positives arising out there. The European markets that had witnessed some pressure in preceding week, closed in green yesterday. The Dax was a major gainer with 1.25% gains. FTSE and CAC 40 also closed almost half a percentage up.

US markets also closed in green as the earnings were better than expected. The Dow and the S&P 500 ended at record highs on Monday while the NASDAQ rallied as shares of Internet and biotech shares advanced. Dow closed at 16695 (Up 112 points) up 0.67%. The S&P also closed higher at 1897 (Up 18 points) Up 0.96%.

Asian stocks rose, with the regional benchmark gauge on course for its biggest increase in six weeks, after U.S. equity indexes climbed to records and as investors weighed earnings. The Nikkei is trading with 1.76 % gains as the Yen depreciated against the USD helping the investors gain few brownie points. Hang Seng is also up half a percentage point. Ahead of Industrial output data Shanghai Composite is trading with gains of 0.13%. The industrial output data will be announced later today and holds the key for movement of Shanghai markets.

As for the Indian equities, the SGX Nifty is indicating towards another strong opening today. SGX Nifty is up by 53 points to trade at 7095 (Up 0.75%). Moot question is whether to enter at these levels. We feel the markets are likely to continue the dream run. However trading in smaller lots is the right strategy. Some supply pressure may come as we head towards election results on May 16th. Overall the scenario is likely to maintain its momentum today also.