Election results to decide Market movement

Markets have been rising now for almost eight months and have done so in three distinct phases. The first was after the sharp fall in the value of the rupee against the dollar in the June- August 2013 phase when they rose from 18,000 levels to 20,700 in the space of just about a month and then rose further around Diwali in November to 21,200.

The second phase was on the BJP's performance in the state elections when the Sensex rose from 20,100 to 21,700 and made a new lifetime high.

The third rise has been from February onwards when the rally has moved from 20,000 to 22,700. This rally is purely on account of the fact that there would be a change in government and that the new government would be stable.

Being a contrarian and playing the devil's advocate let us assume that the expected does not happen. What would happen to the markets? There are three possible scenarios in case the expected one which is that the BJP led NDA will form the government does not happen.

First is that the NDA in its present form will fall short and BJP would choose another PM candidate acceptable to its proposed allies and form a government.

The second is that the BJP and Congress both do badly and the third front emerges as a leading alternative. This group supported by the Congress forms the government. The third is that the Congress led UPA forms the government with the help of some new allies. I believe the first alternative in case the NDA falls short at the first attempt is the most probable among the three alternatives.

I believe in scenario one or three there would hardly be any impact in the markets other than some knee jerk reactions.

(The writer is an investment analyst)

As appeared in Mail Today