'Not elections, but oil prices is game changer for markets'

After the pessimism of 2011, liquidity inflows have lifted market spirits and according to member of BSE, Ramesh Damani, a brand new bull market awaits investors.

While lagging fundamentals still exist, Damani says that liqulidy inflows and oil prices are likely to set the market trend.

Negating the skeptics who are calling it a big trading rally, Damani reiterates that the market will ultimately reward companies that have sustainable cash flow and good dividend, so there is no reason to be particularly wary that it’s just a liquidity-driven rally.

Keeping up with the bull trend, the need of the hour is foreign inflows. “What the market wants now for the next three-four months is monetary easing; they want RBI to push down interest rates, they want fiscal consolidation and they want resurgence in terms of reforms, so the market is looking for those three things which is probably the cocktail needed to take the index up back to 21,000 in terms of the Sensex,” says Damani.

The game changing factor in all this is oil prices and not so much the outcome of UP elections or Budget 2012. Infact Damni feels the upcoming Budget is not bold enough to guide markets. Moreover, Damani says that oil prices will rather go down than up. Since Iran just produced 2 million barrels a day, disruption in supply is causing ail prices to spike, says Damani.

Even Nilesh Shah, managing director, and chief executive of Envision Capital, feels market direction will be determined by rise in crude oil prices. UP elections is a non-event, but looming fuel price hike is a worry for the market, said Shah.

Even though Damani is not very bullish on the Budget, he says measures like long-term capital gains of some kind can completely shock the market.

In his opinion Security Transaction Tax is a much better way for the government to raise money.

Watch the full video on CNBC TV 18: