In the past it has being observed that the national level elections (In India or any big financial market) and stock markets follow a particular trend. Before the polling dates the stock market rallies, as the case is presently in India.
The experts say that this is primarily to get the people excited about the economy, change the sentiments so that the ruling party could bag votes. The other reason I believe is the main reason, which is to raise the money to fund the elections.
According to a survey by the Centre for Media Studies (CMS), even in this recession time the month-long general election beginning on April 16 will witness an outlay of something like 100 billion rupees (two billion dollars). Out of this a whopping 80 billion rupees are spend by different political parties and individual candidates for campaigning, (other legal/illegal issues).
The key objective is to win at any cost and so parties are opening up their purse strings for the elections," said Jagdeep Chokkar, a former professor at the Indian Institute of Management.
But the logic is that they don't spend from their pockets but try and earn the same from the markets and the market will only channelize funds once the sentiments are bullish so that the retail investors join the rally and right at the top the institutions (on behalf of politicians) book the profit and leave the retailers trapped and market sulking.
The same happened in the US presidential elections last year in November when all of a sudden without any big positive news the DJIA rallied by over 30% from its October lows. However this was only to make a new low post the election results.
Hence, I believe that although its difficult to resist oneself to join this bandwagon and go against the tide. But it would make much sense to book the profits at Nifty level of around 3150-3200 (upper level of nifty since last 3-4 rallies) and wait for any significant move on the upside my be above 3250-75 ) and then initiate fresh long positions.
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