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Floating on hope

LiveMint logoLiveMint 13-05-2014 Livemint

Equity prices continue to defy gravity even though exit polls have often been wide off the mark. That’s the reason markets lurched wildly when the counting of votes ended in 2004 as well as 2009. Neither is it any secret that the economy is facing strong headwinds such as high inflation, an investment collapse, overleveraged companies and a weak banking sector.

The NSE’s VIX index, based on the implied volatility of stock options, has risen since the beginning of April. It is often used as a gauge of fear in trading rooms.

But it’s significant that even the VIX fell on Tuesday as investors seem to have taken a Narendra Modi victory for granted. Perhaps they are betting correctly; perhaps not.

The market gurus are already on television screens predicting a vertiginous rise in equity prices—the sort of message small investors lap up with glee. It is good that share prices are now in a new territory but it is a territory full of landmines.

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