By Ruma Dubey

Except for the Congress and Sheila Dixit, everyone seemed to know that the Congress would get routed in these Assembly Elections.  A party with more than 100 years of legacy and credited for the formation of this country, today stands decimated.  Sonia Gandhi says that she is disappointed and blames their colossal loss on rising prices. Oh well, this once again goes on to show how disconnected the Congress is with the psyche of the people!

More than the victory of BJP, it is the advent of a third party, the Aam Aadmi Party (AAP) which has given people who do not agree with neither the ideologies of BJP nor that of the Congress, a new alternative. This is a revolution that we have seen in the making in Delhi and something which could reshape the entire politics of India.  Currently, the Hung Parliament in Delhi is a cause for worry as both, BJP and AAP are ready to sit in the Opposition but thankfully, none will collaborate. For AAP especially now, when it is planning to contest the Lok Sabha Elections in 2014, it cannot afford to compromise on its ideologies.

The market is thrilled to bits. The BSE Sensex hit a lifetime high at 21,483.74 in morning trade today and some 30 stocks hit a new 52-week high. The mood is extremely optimistic. But wait, the market celebrating the victory of the Assembly Elections, the lead of BJP, the prospect of Modi becoming the next PM of India and decimation of Congress. But all this is about what it expects – from the assembly elections of yesterday to the Lok Sabha elections in the next 6-7 months. Thus when there is so much uncertainty, (sorry to pop the balloon), this rally will not be sustainable. Yes, it is best to book profits now before other worries start haunting the markets once again.

The Assembly elections are over but what looms large over the horizon is the QE tapering. There is news that following the strong job reports which came in on Friday, the Federal Reserve Officials are close to winding down the $85 billion money pumping of every day. And rumours abound that it could now happen as early as this month.  The Fed's next policy meeting is scheduled for Dec. 17-18 and the agenda is - pullback, or tapering. There is a view that the Fed might not withdraw as early as this month as it might first need to build the consensus over the timing and quantity and this thus happen in January or February. Many say that the Fed might want to wait a bit more, for sure signs of sustained economic recovery and job reports before it begins winding down. Also the Fed has to come to an agreement on the Budget, deadline for which is 13^th Dec. This is an ominous “Friday the 13^th” because if the Congress does not reach a consensus on the Budget, there could be another shutdown like the one in October. Thus one can safely assume that taper will not happen before 2014.

Yes, the markets are prepared for a taper; they have known for some months now that tapering will happen, it will be gradual and the Fed would be supportive and would not do anything disruptive. Thus many feel that this occurrence has already been factored in.

Thus as the markets will prepare for a tapering, the emergence of BJP over Congress is a huge psychological sentiment builder. The feeling that there is seems to be some light at the end of the dark tunnel has come in and hope is once again growing green shoots. AAP had a tremendous victory in Delhi but it seems unlikely that it will sweep over the entire nation. But having Modi at the helm will keep the spirits buoyant for maybe a year and for sustainable positive sentiments, he and BJP will have to follow it up with action – for the people and industry. Quality of governance alone will decide the future.

We now need to get back to reality, look at existing economic scenario. The IIP numbers are expected on 12^th Dec and this will be followed up by RBI Policy on 18^th Dec. The good news is that 75% of rabi crops have already been planted. Production of wheat, oilseeds and pulses is expected to be good. Data put out by the Agriculture Department has indicated that sowing on almost 45 million hectares has been completed till December 6 of the 60.32 million hectares on which the rabi crop is usually planted.

So for now, enjoy the rally and day dream – this is how the markets could be if BJP wins the Lok Sabha elections. But also remember, that this current rally is not sustainable – only solid economic recovery and strong policy action from the Govt will give a persistent bull run.