Points to ponder

Stock price movements are generally governed by future expectations. If you look at the BSE Capital Goods index, it has gone up 36.1% over the last three months. Compared to that, the BSE Sensex has gone up just 10.3% during this period. 

Now, the financial performance of capital goods companies are directly linked to the investment cycle in the economy. And the investment cycle is again a function of the overall demand, interest rates and so on. So are investors hoping for a revival in the economy after the new government takes over post the 2014 general elections? As per an article in Financial Express, investors are looking forward to a new government that is business-friendly. 

In my view, this is an extremely flawed approach to investing. I have highlighted earlier that a change of government alone cannot solve India's problems. All it could do is lift sentiments in the short run. On the fundamental side, we don't see any immediate revival in the investment cycle. The economy continues to remain subdued. Inflation is still very high to facilitate any easing of the interest rates. So do take into account these factors before falling prey to sentiment-driven investing.