What's pushing the markets up? Sensex and Nifty have made smart recoveries over the past few days…!!

My View on markets 12200 short term. The positive market internals and the higher volumes indicating stronger buying momentum. Alert on General elections begin from today any news can swift market trend to its tendency.

Over All look out The stock markets are looking bright again. The Sensex and Nifty have made smart recoveries over the past few days. The Sensex managed to touch the 11K mark again after a long time. Similarly, the Nifty touched the 3,400 mark.

So, what's the signal? The question is whether this recovery will sustain. Has the long bear phase ended? Have the bulls again taken over? Is there a reason for the small investors to be cheerful and get back into the stock markets in a big way?

Let's see the reasons for the recent gains and whether they are sustainable in the long run.

• The main reasons for the recent recovery include the recent gains in the global equity markets, hopes of further rate cuts by the Reserve Bank of India (RBI), and some positive corporate developments.

The Asian markets have been strong. Wall Street has shown smart recovery. Foreign institutional investors (FIIs) as well as domestic institutions have started increasing their investments again. The inflation rate has dropped close to the zero level.

Investors are expecting a further cut in domestic lending rates. This fuelled the interest rate-sensitive realty and capital goods stocks. Moreover, the largecap schemes of mutual funds witnessed increased inflows from investors.

The global stock markets have rallied as instances of economic recovery have emerged. The US has come out with plans to buy toxic assets from banks, which promises to boost the global financial system. Most markets, developed and emerging included, are up in the range of 25 percent from their lows reached earlier this month.

There are some indications of revival. In the US, consumer spending was up second month running, and house sales have recovered slightly. Commodities are up sharply from their December lows, and manufacturing appears to be picking up in China.

Back home, steel producers claim to be running at full capacity, cement dispatches are strong and consumer goods demand is firm. So, things have started brightening up.

The earlier falls have been heavier because of weak global cues and profit booking by investors. Moreover, there was also the effect of investors deliberately booking losses before the fiscal year end for tax purposes. Globally, stocks had gone down on the news of increasing distress faced by American automakers and weak economic outlook by US banks. This had an effect on domestic stocks

The macroeconomic factors have been favorable. The yield on government bonds is currently on an upward trend. The government has announced plans to auction bonds worth a whopping Rs 2,40,000 crore in the next six months. Such a heavy borrowing programme will not sail through at the current interest rate levels.

The government will necessarily have to make the bonds attractive with higher yields. This will have a cascading effect on the economy, including the stock markets.

If the borrowing cost of the government goes up, the interest rates applicable to corporates and individuals will shoot up. This will raise interest payments and lower profitability. It will further diminish the demand for interest rate-sensitive products. This is bad news for the equity markets.

Risk-averse individual investors need to stay away from pull-back rallies for the time being. The markets also decline equally sharp. It's difficult for individual investors to avoid slippages. It would be better for individual investors to buy value stocks on dips.

Even at current levels, quite a few blue-chip counters are available at historically low valuations. If you buy at regular intervals, without waiting for the market to bottom out, you have a greater chance of earning good returns.

*Note: Some data sourced from other reports