A new bull run may last for 3 years: Arun Kejriwal

Markets could be highly volatile this week. Exit polls would be available post the ninth and final round of elections, which would be held on Monday. Actual results would follow on Friday.

We did see a sharp rally of around 3 per cent last Friday after the purported leak of exit poll by a popular TV channel which predicted a clear majority for the Bharatiya Janata Party-led alliance. Markets are rooting for such an alliance and hence the frenzy.

Let us move beyond the week and see how markets would pan going forward in the coming months.

One is assuming that government formation would pass off smoothly without too much drama. The Budget process would kick off and we are likely to have it in mid-July.

The new government has its job cut out with the economy in a bad shape and resources virtually non-existent. The subsidy bill has risen manifold and remains unprovided for with a number of subsidies being deferred to the this financial year. To add to these woes is the fact that the economy has virtually stalled and decisions kept in abeyance for far too long. All of these need to be done in double quick time and bring the economy back on track.

No doubt this is easier said than done, and the government would have to put its best foot forward to achieve many of these things.

Stock markets live on hope and expectation and currently there is no dearth of it. There is optimism and the market is willing to take tough measures in its stride. Though markets have gained significantly in the last few months and currently trading at new highs, the good thing is that valuations are not yet fully stretched. The performance of India Inc, if measured by the top 100 companies' performance is still growing by about 15-20 per cent and therefore there is great hope.

Secondly, it appears that things have reached the bottom and should improve from here if a little push is given. Further, the rupee has stabilised and it appears the worst is over. Besides, foreign institutional investors are very bullish and continue to pour money into the economy.

On the flip side, the so-called green shoots have been misleading.

Corruption and policy paralysis have been the two biggest deterrents to the progress of our economy. If these are addressed on a war footing, it would give a big boost to the economy. Infrastructure projects of thousands of crores have been stranded for want of clearances and a new government is expected to treat this as a top priority.

If we can clear obstacles to our stalled projects, it would not only kick-start the economy but provide jobs to thousands of people.

Which way would the markets behave? I believe upside in the immediate short term may be capped at a rise of 7-to-9 per cent from here. What should an investor do? If one has short term positions that are giving good returns, some money must be taken of the table. If you are an investor and have taken fresh positions since September 2013, profits would be there all around you, and again booking some would be advisable.

In the long term, things look much better and the possibility of this being the beginning of a new bull run lasting around three years looks quite likely. Invest wisely.

(The writer is an investment analyst)

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