The thumping victory of the Narendra Modi-led BJP in the Lok Sabha elections had the stock market in raptures, and rightly so. Indian investors, especially the foreign investors, have hit the jackpot by calling the election outcome right, as early as September last year.

The foreign investors turned positive on the Indian stock market ever since Modi was nominated as the prime ministerial candidate for the NDA.

The Sensex is up 38 per cent and the Nifty is up 40 per cent since then. This unwavering bet – despite the intervening incidents such as the rise of the Aam Admi Party or the resurgence of regional parties – has now paid off.

Short-term investors would be laughing all the way to the bank with the Sensex and the Nifty gaining 8 per cent in the last six sessions. The first part of market expectation has been fulfilled, with Modi taking over the reins of the country in his hands.

We now have to see how the next part of the expectation – getting the economy on the fast-track with speedier project clearances, greater Centre-State coordination, removing bottlenecks for projects and controlling corruption – is fulfilled. If Modi gets down to the brass-tacks right away and starts announcing a slew of reforms from the first week itself, the party in the market can get wilder with prices surging higher.

But if the first set of announcements is a dampener, we can see prices correcting lower in the short term.

The long-term: Technically, there is a bullish long-term break-out on the charts.

In our yearly index outlook published on January 2, 2011, (http://www.thehindubusinessline.in/iw/2011/01/02/stories/2011010250990100.htm) we had revised the long-term outlook for the Sensex. This outlook has been maintained since then. An excerpt from the piece is produced below,

“As we stand at the threshold of a new decade and a New Year, the long-term charts have never looked this exciting. We are not talking about the next 12 months. It is a given fact that the year ahead will be choppy. It is the next 10 years that could see multi-fold appreciation in the benchmark.

It is fairly obvious that following a long-drawn bear market between 1992 and 2001, a fresh bull market is now in progress.

Wave 1 of this bull market ended at the January 2008 peak of 21,207. The 2008 crash was the second wave that ended at 8,047 in March 2009. The third wave of this bull market is now in progress….

….The targets for the third wave that is in progress from 8,047 trough are 39,337, 58,743 and hold your breath, 90,160.

This wave can terminate at either of these targets and our preference veers towards the second. Extrapolation of the move that began from the 1980 low also gives us a Sensex target in the six-digits.

…The long-term outlook will be roiled only if the Sensex goes on to close below 13,000. If corrections halt above 16,000, that would reinforce the positive long-term view for the index.”

We continue to retain this outlook. Within the third wave of the long-term bull-market that began from the March 2009 low, the Sensex and the Nifty were in a long-term consolidation phase since November 2010.

This consolidation phase resulted in the Sensex moving between 15,000 and 22,000 over the last three years.

The Nifty was similarly stuck between 4,500 and 6,300. But the break-out that has taken place over the last three months appears to be more sustainable in nature. The long-term outlook is now positive.

This view will be threatened only if the Sensex goes on to close below 21,200 and the Nifty below 6,300. The long-term targets, given in 2011, will be in play, to be achieved over the coming years.

The medium-term: The bullish forecast given above does not mean that the stocks are going to fly away immediately. There are corrections likely.

But unless the Nifty closes below 7,000 or the Sensex below 22,000, the medium-term view will stay positive.

Medium-term targets for the Sensex, once it gets past the 25,000 hump, are 29,683 and 30,099.

Corresponding targets for the Nifty are 8,031 and 8,071.

The short-term

Sensex (24,121.7) : There is no doubt that the short-term is going to be quite exciting for the Sensex. Despite the index sliding sharply from the intra day high of 25,375 on Friday, the short-term view stays positive.

Key short-term supports are at 23,851 and 23,464. Short-term investors can buy in declines as long as the index trades above 23,464. If the index holds above 24,000, it will be a positive. The index faces short-term hurdle in the zone between 25,000 and 25,400. But a sharp move beyond this zone can take the index to 26,014 or 27,098.

Nifty (7,203) : The short-term outlook for the Nifty too is very positive. Immediate support for the index is at 7,200. Sideways move between 7,200 and 7,600 will be construed as positive. That will mean that the index can move on to 7,563 or 7,762 in the near term. Supports below 7,200 are at 7,100 and 7,000. Short-term view will turn negative only on a close below 7,000.

Global cues

Global markets were largely upbeat last week with most indices near their medium-term highs. The Dow closed near its life-time high. The movement over the past two months indicates that the index can move higher to 17,109 once it gets past the 16,500 hurdle. The mood was upbeat in many of the other Asian markets too such as the South Korean market, Hong Kong stock market, Indonesia and Malaysia.

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