Sensex may rise 1,000 points before elections: BlackRidge Capital

The BSE Sensex has gained over 3 per cent year-to-date, but the rally in Indian stock markets has been particularly sharp since February. The Sensex and Nifty have hit record highs earlier this month amid strong buying by foreign investors. Hopes of a stable government post elections due by May and improving macroeconomic indicators have contributed to the rally in Indian stock markets. Arindam Ghosh, director of BlackRidge Capital Advisors told NDTV's Prashant Nair that 3-5 per cent gains in markets are possible before elections.

Here's the edited transcript of the interview: (Watch the full interview here)

What has driven the rally in Indian stocks?

Markets have been trending up ahead of elections on hopes that decisive leadership posts polls will lead to big bang reform announcements, which will help uplift the investment cycle. There's a sentiment recovery as far as cyclicals are concerned. There have been a few macro indicators which have started looking better than earlier. Current Account Deficit has tamed down considerably, while inflation is trending down. So, there is a lot of hope, which is getting built up. Within the emerging market pack, India is standing tall given the sig macroeconomic changes that have come by.

What is expected in the run up to the elections?

Overall trend of market is up. From here to elections, expect another 3-5 per cent up move. Bigger move on both sides is possible after poll outcome. Volatility is likely to rise significantly as we get closer to elections.

What are the challenges for the next government?

How the next government pursues reforms and revives growth is the key because growth has been severely challenged. Containing fiscal deficit, reviving investment cycle, ensuring pickup in capex cycle will be the key triggers. On the downside, the threat of not so encouraging monsoons, which will also play out on inflation, is a big concern.

What about interest rates?

With inflation easing, RBI will have elbow room to pursue concessions on the monetary policy side. Hikes are on hold, but don't think rates are going to come down anytime soon. Growth revival is a function of 2-3 years.

How India ranks in the emerging markets space?

There has been a big drag because of growth concerns and capital outflows in emerging markets. On the other hand, developed markets have seen strong recovery. This polarization is getting wider and over next 2-3 years, developed markets will continue to pull along EMs. Within EM, India is standing out as there has been significant improvement on macro front. Also, there is anticipation that growth will come back once new government is in place. China has been slowing down, which means India could be a beneficiary out of that.

What stocks to buy?

Stick to quality names in high beta space. Banks will lead the recovery.