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The markets have been on a roll and they have done well for themselves. The current rally has been going on for close to three months now and it has gained a good 8,700 points on the BSE Sensex and 3,750 points on Nifty.

What comes to mind are two questions. The first is what next, how much more can this market gain from hereon and secondly post this rally and the upcoming general elections, what after the election results are declared in mid-May 24.

Let us take the first question and discuss the issue at hand. The rally is happening and the stock markets believe that the present government will return to power post the elections.

How many seats and with what majority is immaterial. The moot point is the magical figure of 273 which is one seat more than the halfway mark being the key. The opposition, which is trying to put up a united effort against the ruling BJP and has formed the INDIA bloc is caught in its own issues and is still struggling to find solutions to the seat-sharing quagmire.

The people don’t seem to be enthused with the above idea so far. With three months left for the elections to begin and four months for it to end, the united opposition has a long way to go. Will they or will they not succeed is surely a very long way away.

Till the results are to be declared, the markets will by and large remain positive and would remain in an uptrend.

The second question is post the results which way the markets will move. By the time the election results are due in mid-May, a major correction would be due as we would have rallied for about seven months. The only point of discussion would be whether the correction would happen immediately after the results or after a sharp euphoria in the markets.

This would depend on the way India votes. If the government of the day wins the elections, there would be a sharp rally which would end with euphoria. Post this event there would be a sharp correction. In case the present government loses the election, there would be a sharp correction immediately post the results.

One way of looking at this is that there would be a correction post the results being declared. The difference is in the first case there would be a sharp rally before the correction while in the second case there would be a sharp sell-off before any corrective rally.

What should an investor do in the current circumstances between mid-January and mid-May? There would be opportunities to both sell and also buy. With a sharp rally taking place, it would be a good time to book partial profits and continue to do so over time. Further, there could be buying opportunities to re-deploy the cash collected from selling stock when the markets correct as witnessed on Tuesday and Wednesday in the week gone by.

While the general direction would be upward over the next four months, corrections would happen over time as well. Some of these would be sharp while some would be smaller in comparison. Things cannot and will not be unidirectional in either the upward or downward direction.

One other point to be remembered is the fact that the expectation of performance of the markets in quarter three where results for the period October to December 23 are to be declared is not all smooth sailing.

There are some outstanding results while many others have been disappointing. Very clearly, valuations in India are just not that cheap as one would expect. Further one other point of concern is that the run-up in midcap and small cap stocks, has made this sector dangerously valued and a major cause of concern.

In conclusion, all things remaining on track and on expected lines, expect the markets to remain buoyant and positive over the next four months with intermittent corrections, where some are short and some are larger and swift. Overall, the trend would remain positive.

Post the results being declared, there would be a sharp correction either on the results or post the euphoria post the results. In short, the correction would be for the six months of rally that we have witnessed and either the euphoria or the disappointment post these results. Choose when you want to take your money home.

The strategy for the next four months would be to ride the rally but keep on booking profits. The focus of attention in this period should be the large cap space as the comfort in midcap and smallcap space is no longer there.