Expect Some Profit Booking

Benchmark indices hitting a lifetime high should not come as a surprise to many. After all the dream of a stable government, decisive leadership and hence a fast growing economy came more closer to reality after the BJP found itself in the driver’s seat in three states and very close to holding the reins in the fourth one. The euphoria over the BJPs win has reached a point where reports have begun pegging the market (read the Sensex) at 24000 points soon.

These expectations may not seem to be unrealistic at least for now. Pessimism surrounding the markets has been swept under the carpet and it all looks set for the next big leap. The argument about a change in fundamentals does hold good even at this point in time, but its weightage certainly calls for a re-rating. That re-rating has already begun and will continue over the near term preceding the general elections. Remember, the market always discounts the expected future. Whether that discounting is coming in a bit too early is anybody’s bet.

According to one school of thought, the outcome of the general elections can sometimes be diametrically opposite to the state elections. But things certainly look different this time around. The wave is not just against an insipid and fragmented leadership, it is also about putting in place a more dynamic, a comparatively younger and of course a leadership that can lead from the front. The BJP’s prime ministerial candidate Narendra Modi is today being looked upon as possessing all of these characteristics as opposed to a divided house that the UPA is.

The markets have seen through this and the voices emanating not just on the domestic side but also on foreign shores are a sure sign of it. From Goldman Sachs to the Nomura’s of the world, all have voiced their eagerness (directly or indirectly) to see a Modi-led BJP government at the centre. That speaks a lot about how Modi is being looked upon as the new messiah of the markets. Never in decades has a political figure, especially of a right-wing nationalistic establishment been looked upon as an economic savior and a harbinger of good times for the markets. It surely looks different this time.

As the year draws to a close, global markets too have been shrugging off worries to keep their calm. The week began with European markets focusing more on the Chinese export data which was better than expected than looking cynically at the German Industrial production. In the US too, stocks gained as investors ignored noise about the taper coming in next week. the S&P 500 rose to a record close in yesterday’s trades.

The Asian markets are trading mixed this morning. The Japanese Nikkei after having gone up by more than 300 points yesterday is witnessing something like a profit booking today. Korea and Hong Kong are the other two markets which are trading in the red, though only marginally. Taiwan, Singapore, Malaysia and China are trading flat but with a positive bias.

There is nothing much to ponder on as far as the Indian markets are concerned today. They are expected to take off from where they closed yesterday. A positive open but with an eye on profit booking looks more probable. The trading bias is likely to remain neutral as we proceed into the day.