It was a dream run for stock markets in 2014

It was a watershed year, where country's voters gave their first decisive mandate in a general election in 30 years and the markets rejoiced by giving a peak return of 43 per cent.

The year started on a cautious note with the greenhorn Aam Aadmi Party (AAP) riding high on its state election victory in Delhi. This was expected to divide the electorate in the general election. Thus, the prospect of a weak and cobbled-up government at the centre was creating jitters for investors.

But the markets started a fresh rally around mid-February, coinciding with the resignation of AAP leader Arvind Kejriwal as Delhi's chief minister.

Meanwhile, the then BJP prime ministerial candidate Narendra Modi's campaign reached a feverish pace. The pre-election market rally built on hopes of a reform-oriented government led the Nifty to cross 7,000.

After the historic election which saw the BJP come to power with an outright majority, PM Narendra Modi strummed the right chords by reaching out to the people, showing his intent to deliver on electoral promises. The bureaucratic inertia was shaken up, and pieces of the puzzle in the 'India Story' finally seemed to be falling into place, helped by lower prices of crude and other commodities.

In one stroke, falling commodity prices took the pressure off on import bills, subsidy, current account deficit and inflation, allowing the government to implement diesel de-regulation, which was pending for more than decade. The monsoon also recovered to near normal levels after initial jitters, except in parts of central and north India.

Among Modi's first tasks was to promote the rejuvenated "Brand India" and attract investments. His overseas trips to America, Japan and Australia reconfirmed that India was back in the reckoning. Closer home, the "Make in India" call was made to revive domestic manufacturing. However, the major stumbling block will be the "ease of doing business" in the country.  Though this seems to be the government's priority, we are yet to see big changes on this front.

Subsequent state elections also confirmed Modi's vote-winning abilities, with the BJP wresting important states like Haryana and Maharashtra in October. Modi mania further gripped the markets and the Nifty touched a new high of 8,613 on November 28.

Having built huge expectations, it was time to deliver as the ground realities were vastly different from sentiment in the stock markets. The macro numbers - farm growth, manufacturing data, revenue collections, trade deficit and credit growth were lagging expectations. GDP too grew at a slower pace of 5.3 per cent in the second quarter.

The government had decimated detractors, but new political challenges had cropped up from within as controversial statements by right-wing groups and even lawmakers provided fodder for the opposition to stall proceedings in parliament. After one of the most productive monsoon sessions, the winter session witnessed a number of disruptions.

Corporate India, which earlier hailed the change at the centre, is also getting impatient with the pace of reforms. India needs to kick-start infrastructure projects and stalled investments worth Rs 18 trillion to get the economy back on track. Amidst fears of Modi-fatigue, investors still seem to be willing to give the government more time. I believe the day of reckoning would be next year's budget, which should lay down the government's roadmap and intent for the next few years.

Indian markets would continue to be swayed by international developments, and the slowdown in Europe and China would have an impact. Although the crash in crude price is a huge positive for India, there needs to be a balance in the ecosystem which maintains a healthy economic equilibrium between producers and users. The current prices have disturbed this and one of the first casualties is Russia, which could be a followed by other economies dependent on oil.

Economic revival in the US coupled with faltering economies in many other countries could play havoc in the currency market in 2015. The government's major task ahead would be to revive the economy and generate domestic demand and employment to cushion the impact of international vagaries.

The recent market correction was overdue. A further correction would be an opportunity for those who missed the rally in the past few months. The markets could get a reality check next year and consolidate before the next big movement. I still believe Modi will not fritter away his mandate and deliver on his promise, albeit with a delay.

Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.

(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)