The markets have rallied smartly in the last two months or so, the BSE Sensex has registered a fresh all-time high of 22,621 just two trading days prior to the beginning of 16th Lok Sabha Elections in India. In terms, the Sensex soared over 9 per cent (1,873 points) in the last two months (February + March 2014).

Is the market bullish on account of the upcoming elections, and factoring the forecasts of Modi-led BJP victory? or is the rally on account of likely departure of the ruling UPA government – a farewell to the ruling party?

There is general consensus in the markets, that the current rally or so called hope-rally is in anticipation of a stable government at the Centre. Also to some extent market observers have called it a Modi-rally. The chief minister of Gujarat and prime minister candidate of Narendra Modi is touted as a favourite to win the upcoming elections. Also, there is a lot of propaganda, on how the Gujarat success module can be applied to rest of the country, and drive the economy higher.

Is it right to say that Modi’s government, which, worked to brand Gujarat as a dynamic development, economic growth and prosperity – so-called Vibrant Gujarat. In the first decade of the 21st century, Gujarat’s economy grew at a pace of 10.08 percent annually, as against the all-India average growth rate of 6.16 percent. The growth was largely driven by improvement in infrastructure, industrialization and agriculture. But will the Gujarat model be workable for balanced nation growth?

Now let’s look from a different angle – fundamentally, one can argue that the ground work for the current market rally started after the ‘vote on account’ or the Interim Budget on 17 February, 2014.

Post the ‘vote on account’ the government started to come out of ‘policy paralysis’ and took various measures mainly in the financial  sector to bring down the Current Account Deficit (CAD), generate fund flow into the system and bring stability in Rupee against the US dollar.

India’s Current account Deficit – had widened to record high of $ 88 billion that was 4.8 percent of the GDP (Gross Domestic Production) for the fiscal year ending March 2013. The Government increased import duty on Gold and Silver to 10 per cent to curtail forex outflow , and also announced measures including easier External Borrowing norms for financial bodies such as  IRFC, PFC, IIFCL for infrastructure  sector and permit to raise US dollars through quasi–sovereign  bonds.

Further, reduced the fiscal deficit by raising funds through selling of PSU ETFs (Exchange Traded Funds) by issue of blue chip state-run companies. Many such efforts by the government saw the CAD in the third quarter of FY14 drop to the lowest level in eight years at 0.9 per cent of the GDP.

The improved fund flow also brought immense stability to the India Rupee. The Rupee which had plunged to record lows of over $-68 per US dollar, has now regained the $-60-mark after almost eight months. As the BSE Sensex as of today has zoomed over 11 per cent since the ‘vote on account’ on 17 February, 2014.

Now, its for the readers to decide – whether the markets have rallied in anticipation of a ‘Modi’ government or have they rallied based on the imrpoved fundamentals owing to last minute efforts by the ruling government post ‘ vote on account ‘.