Five years ago—on 17 May 2004—Indian equities plunged on news that the United Progressive Alliance would form a government in New Delhi with Left support. The 30-share Sensex had lost a record 15.8% of its value on a frenetic day, opening at 5,020 and hitting an intraday low of 4,227. That episode receded from public memory after the subsequent bull run that took the Sensex over the 21,000 mark a few years later. Can today's gap up lead to a reverse mirror...? (Gap up and a bear for the next few years...?)
Come 2009 the verdict is out again and this time its a resounding victory by UPA, led by Dr. Manmohan Singh. It was the best possible verdict (other than clear NDA victory). The people who held the country to ransom (likes of Left, Mayawati, etc) have been shown the door.
However as an expert said, "The real worry is now that the Congress should not fritter away this mandate like they did in 1984". The next big event lined up domestically is the Budget and the Monsoons. Budget will take at least2 months to be prepared, and good monsoons should be here in a months time. Domestically, things seem to well settled now. The Budget would be interesting because all the freebies will have to be balanced out.
Today, the markets will gap up 300-400 points (Nifty). Now, what do you do at this point? Do not jump and buy the gap up. Just look at the charts after the Nuclear deal vote of confidence, the markets peaked the next day. We still have not reached nifty 4620 after that. Look at US markets charts when the day Obama was sworn, the Dow fell and reached its all time low within few months. (Coming of Obama was a good news for US).
It would be best to wait for markets to cool in. It would now be retail money jumping in. They are typically the last to get in. There would be definitely corrections on the way. (At 13000 sensex, nifty 3950, the trailing P/E would be around 19.)
There would be a dip after the euphoric rally on Monday. One should wait for that dip to buy.
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