>KARVY BAZAAR BAATEIN

Caution is key...

Global stock markets rallied signifi cantly last week, with Singapore, Hong-Kong and Thailand stock markets showing spectacular gains of around 12-16%. While emerging markets like India and China rose 4-6% during the week, developed markets like the US and Europe, too, recorded modest gains. Clearly, the Indian stock markets continue its dream run, with the BSE Sensex notching up its ninth consecutive week of gains, rallying more than 46% from its March 9 lows.

This rally initially began with positive global cues and better-than-expected economic data emanating from the US. The positive new fl ow from the US continues to overwhelm markets worldwide, raising hopes of a slowdown in the pace of economic decline and an early global recovery. In fact, as we go to press, the US data on job cuts for April has come in lower than expected, indicating the possibility of a soft landing for the economy.

Moreover, the much-awaited stress test results did not feature any negative surprises, and that proved to be a positive for global markets. The Fed Chairman Ben Bernanke pointed out that the results of the stress test should provide considerable comfort to stakeholders. Overall, we believe that global equity markets are better placed for further upside post the stress test results.

Meanwhile, with the Great Indian General Elections being played out in all its glory in the world’s largest democracy, most political analysts expect one of the most fractured verdicts in the nation’s political history. With no clear winner in sight, the high “uncertainty” would result in significant “market volatility” as we lead up to the election results and its aftermath. Not only are the potential single-largest parties—the Congress and the BJP—expected to garner seats far short of the magic figure, but even their respective alliances—the UPA and the NDA—may find it difficult to notch up the required numbers, particularly with the emergence of the Third Front. Hence, caution is highly recommended in these uncertain times. Investors can stay away from the markets until greater clarity emerges or they can partially hedge their portfolios by buying put options in the derivatives market.

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