Buoyancy triggered, bull mkt to prevail

The uptrend that triggered in the stock markets, a week prior to the announcement of the poll verdict on May 16, not only continued thereafter but also wrapped up a larger number of equities with it. A host of the stocks reached their 52-week high / life-time highs on increased buying with many gaining over 20 per cent and a few even by 80 per cent and more.

The tally-sheet at the end of the week showed gainers outnumbering the losers by nearly 4:1. The buying frenzy sent the BSE Sensex to close a life-time high of 24693 up by 571 points from its previous week's closing of 24122. The major factor that drove the markets up was the high expectations from the Modi-led new government who has proved himself as the champion of growth in Gujarat as chief minister.

Modi's win coupled with a likely stable government not only attracted the FIIs who had stepped up their purchases in the stock markets in the previous week but also attracted individual investors to return to the bourses. The brokers' offices which had been wearing deserted looks before the exit poll results were announced are now seen flooded with investors. The risk appetite seems to have increased and therefore, even low priced and dud stocks are also making big strides.

Earlier it was believed that once the poll results are out, the markets would stop going further up, but they have neither taken a pause nor have they stopped going up, as Modi has raised public's expectations very high and the markets have returned to their cyclical uptrend after a long interval. Therefore, everyone wants to buy stocks.

The swearing in ceremony of the Modi-led government is slated to be held on Monday evening and thereafter the portfolios would be allocated amongst his ministers. It is widely believed that both the portfolios like finance ministry and the commerce ministry, considered to be very important from the viewpoint of the economy and the stock markets, would be attributed to the ministers with progressive ideas and minds. If the expectations turn out to be true then the markets would continue their climb even after the swearing in.

However, a week after the swearing-in an equally important event is scheduled to happen. That, the Reserve Bank of India is going to announce its first monetary policy under the new guards in New Delhi. However, in view of elevated inflation numbers, no one expects the apex bank to soften the interest rate this time but a few steps that could ease tight liquidity position faced by the banks may be announced. If such steps are announced then the markets would adhere to their uptrend and if the status quo is maintained in all respects and ratios, a minor correction may happen which would provide a golden opportunity to the prospective buyers.

The onset of the new monsoon season is also likely to coincide with the Reserve Bank's credit policy meet and if the news is good from that front too then it would be a highly positive for the markets. The new government's budget is expected to be announced in mid-July or so by which time the monsoon will have progressed satisfactorily all-over India. In that case seasonal buoyancy would dominate the markets, it could be safely assumed. Incidentally, the long-term investors would start receiving dividends from the companies and with their bank balances going up more funds could be expected to pour into the markets.

All these are highly positive factors for the Indian stock markets and the investors are also banking on Narendra Modi for faster economic growth and also reduction in inflation and therefore, many of the market gurus have termed the last couple of weeks' advance in the stock markets as the beginning of a super and long-lasting bull market.

As per the founders of technical theory, like Charles H Dow and his deciples, the low priced stocks provide higher returns than the high priced ones if bought in the beginning of a major bull market. The investors are therefore advised to pick up those low priced stocks that have not ceased to be traded even during the worst phases of the bear markets.