Mumbai, March 9: There could be more steam left in the pre-election market rally that has seen investor wealth soaring nearly Rs 2.83 lakh crore this month.
Market mavens are expecting the 50-share Nifty to hit the 6800-mark before the results to the general elections are announced on May 16.
Optimists have gone a step further in projecting that the index could peak the 7000 mark if the BJP-led NDA is successful in tying up with more allies and stability is maintained in Ukraine.
On Friday, the key indices had hit record levels with the Sensex finishing at 21919.79 and the Nifty surpassing the 6500-mark for the first time to end at 6526.65. Last week alone, the 30-share Sensex has seen a spurt of nearly 800 points, or 3.79 per cent.
The rally came from expectations that there will be a mandate in favour of the NDA alliance and of signs of improvement in the health of the economy.
However, the sharp surge has raised questions about whether the current rise is sustainable or a bubble based on pre-election surveys, which can go wrong.
Market observers, however, are optimistic. “On whether this whole thing is a bubble, one can say that the markets always think six months in advance. The hope is that the next government should get a clear mandate, which should not only lift the overall sentiment, but earnings also,” Paras Bothra, vice-president, equity research at Ashika Stock Broking, told The Telegraph.
“There is also an expectation that the economy has bottomed out and in such a scenario any positive policy development will only propel the economic growth further. Moreover, one must also look at the valuations which at this point are not expensive,” he said.
The analyst does not rule out the possibility of the Nifty touching the 6600-6800 mark before the elections.
However, he cautioned that since the incremental rally in stock prices would be momentum driven, it exposed the markets to correction as well.
“We have had a strong rally over the past few days, so the incremental gains will be momentum driven and it will be fraught with risk as well. The more the market climbs before the election, it becomes that much more vulnerable as far as trading goes,” he said.
An analyst with a foreign brokerage said there could be a selloff from foreign investors if there was a fractured mandate, paving the way for a party other than the BJP or the Congress to come to power.
“We have seen stock prices rallying sharply and they could now consolidate at the current levels over the next few trading sessions,” he said.
The rupee, which rallied to a three-month high last week, is unlikely to maintain the momentum this week because of higher demand for dollars from importers and a rise in the greenback after strong non-farm payrolls data in the US, according to the PTI.