Sharp rally in blue-chip stocks

Sharp rally in blue-chip stocks:
The stock markets have rallied quite significantly over the last couple of months. The Sensex has gone from the 8,000 levels to the 12,000 levels and the Nifty has gone up from the 2,400 levels to the 3,600 levels. This market rally has been quite broadbased. There was a sharp rally in many blue-chips, especially the severely beaten-down stocks and sectors like banking and real estate. There have been some good earnings posted by many front-runner companies last month.

The markets are trading in a range from the last few days in anticipation of the election results. The fact that the markets have not corrected significantly during the last few days shows that investors are expecting a stable government at the centre.

Here are some strategies for investors:

A stable government at the centre means stable policies. That is why the markets pay so much attention to the election results and remain sensitive to the developments around the formation of a stable government.

The next few days are going to be quite volatile for the markets and it is difficult to predict their short-term direction. Risk-averse investors are advised to track the developments on the political front, and stay out of any active trading or investments in the markets in the next few days.

Identify good buys:

Investors can do their homework of identifying the fundamentally-good stocks. In case there is a sharp correction in the markets, they can enter into these stocks slowly in smaller quantities. Usually, it is seen that markets over-react to negative news and it is difficult to predict the bottom of the markets in these situations. Investors should not panic and invest only their risk capital in the markets. Historically, it is seen that fundamentally-strong stocks bounce back immediately as soon as the correction is over.

With the formation of a stable government at the centre, the markets are expected to witness a sharp rally. Again, in that case, investors should take a realistic view of the situation and not get carried away with market sentiments. Existing investors should book some profits at higher levels and those looking at entering the markets should wait for them to get stable rather than chase stocks.

Prepare for opportunities:

The markets have rallied quite significantly over the last couple of months on the back of positive sentiments in the global markets, betterthan-expected results delivered by corporates, and expectations of a stable government here. The markets have not corrected significantly since the rally from March.

Analysts believe that a logical correction is due in the markets but the strong bullish under-current is holding the markets strong. In case the markets do not correct or consolidate immediately after the results, they will correct after a few weeks when things stabilise. Investors should keep some liquidity in hand to use any such investment opportunity.

Track markets:

Patience and regular tracking are the most important aspects of equity investing. Experts advise investors to watch the markets closely.

It is advisable to invest in the markets with a medium to long term perspective. Day trading is quite risky.