Wolf in bull clothing?

He that makes himself a sheep shall be eaten by a wolf.

Don't worry if you missed the run yesterday. The sudden and sharp advance remains quite inexplicable given the bleak IIP report and uncertainty over the outcome of elections. The upsurge was led by strong inflows from overseas investors and buying by select local funds.

Today is the fifth and final round of the Lok Sabha polls. The results will be out on Saturday, but exit polls from various media outfits will start rolling in from this evening. Expect a cacophony of conflicting signals depending on what you choose to read or hear. It pays to wait till the results are announced.

At the moment, there is no clarity on who will win the race to parliament. A fractured verdict is what everyone has discounted. A triumph for the NDA was the buzz yesterday and that would cheer markets further. A win for UPA may also be welcome unless it is heavily propped up by the Left.

Today, we expect the market to open on a cautious note. Global cues are mixed. Don’t be surprised of Tuesday’s gains are wiped out before the weekend. After that the trend will be determined by the poll verdict. It is a big event risk and one should not load up too much on shares.

In any case, the two-month rally has been overdone and some correction is imminent even if the election result is favourable. The much-touted global economic turnaround may take longer than anticipated. There may be more pain going ahead which means the recent rebound may taper off after a while.

Having said that, the overall outlook has improved manifold over the past two months, with the so-called "greenshoots" driving the sentiment across the globe. What's more, a lot of money is sitting on the sidelines - both local and foreign - which will come in at every fall. In short, the upside as well as downside are capped, though the bias remains positive on the whole.

Lupin is to announce its results today and some new development. Among the other key results to be announced today include Balaji Telefilms, Hindustan Motors, JK Lakshmi Cement, Shriram Transport and Whirlpool India.

FIIs were net buyers in the cash segment on Tuesday at Rs4.52bn while the local institutions poured in Rs1.78bn. In the F&O segment, the foreign funds were net buyers at Rs12.33bn. On Monday, FIIs were net buyers at Rs1.82bn in the cash segment. Mutual Funds were net sellers at Rs3.4bn on the same day.

On Wall Street, blue chip US shares managed to register moderate gains while the technology space saw some profit booking. The Dow Jones Industrial Average gained 50 points, or 0.6%. The S&P 500 index ended barely changed. The Nasdaq Composite index lost 15 points, or 0.9%.

US stocks slumped through the early afternoon, but managed to cut some losses in the last hour. All the three major indices have risen more than 30% since hitting multi-year lows on March 9.

The Treasury budget for April revealed a $20.9 billion deficit. It was the first during the month in 26 years, reflecting the impact of the recession and economic stimulus efforts. Economists had expected a deficit of $20 billion. Treasury had reported a budget deficit of $191 billion in March.

The housing market contracted at a record pace in the first three months of the year, according to a National Association of Realtors report released on Tuesday. The national median price of single family homes sold during the first three months of the year fell 13.8% versus a year ago to $169,000.

The March trade deficit widened after narrowing in February, according to a government report released Tuesday morning. The deficit widened to $27.6 billion from a revised $26.1 billion. Economists expected a reading of $29 billion, on average.

Bank of America reportedly made $7.3 billion from the sale of 13.5 million shares of China Construction Bank to a group of buyers, according to published reports. A number of other US banks sold stock or said they plan to sell stock to raise money.

In other news, Citigroup said that it has approved $8.2 billion in lending to consumers this year, thanks to the government funding it received through the bank bailout plan.

The bank sector was lower, but managed to trim losses late in the session. The KBW Bank sector index, which includes two dozen of the largest banks, fell 4.2%.

Automakers were weaker, with General Motors (GM) down on growing speculation that the company is likely to file for bankruptcy protection. The shares fell intraday to $1.09, the lowest level since 1933, one day after a group of the company's executives said they had sold stock and direct holdings in the automakers. Shares ended at $1.15, down 20%.

Ford Motor fell after saying late on Monday that it will sell 300 million shares of stock to raise roughly $1.8 billion in capital.

Treasury prices were little changed, with the yield on the benchmark 10-year note at 3.17% unchanged from Monday.

In currency trading, the dollar fell versus the euro and the yen.

US light crude oil for June delivery rose 35 cents to settle at $58.85 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $10.40 to settle at $923.90 an ounce.

After the close, Applied Materials reported a steer-than-expected quarterly loss versus a profit a year ago. The chipmaker also reported a plunge in revenue, but results were better than expected. Shares slumped 2% in after-hours trading.

Also after the close, Freddie Mac reported a $9.9 billion quarterly loss and asked the government for another $6.1 billion in help.

On Wednesday, April retail sales are due before the open from the Commerce Department. April sales are expected to hold steady after falling 1.2% in March. Sales excluding volatile autos are expected to have rise 0.2% after falling 1% in March.

Reports are also due on April import and export prices, March business inventories and weekly crude inventories.

The BSE Sensex breached the 12,000 levels and registered an impressive comeback after two days of selling, shrugging off weak IIP numbers, negative Asian markets and uncertainty over elections.

After a flat opening, the key indices turned choppy and rangebound in the run up to the IIP report, which was announced at noon. The sudden turnaround in the sentiment came despite industrial output falling by a higher than expected 2.3% in March after a revised fall of 0.7% in February.

The bulls never lost the momentum throughout the afternoon, with buying actually accelerating in the last one hour of trade.

Finally, the Sensex surged by 475 points or 4.07% to close at 12,158 after touching a high of 12,194 and a low of 11,625. The index had opened at 11,629 against the previous close of 11,682.

The NSE Nifty added about 127 points or 3.6% to shut shop at 3,681. On the other hand, the Small-Cap and Mid-Cap shares posted only marginal gains with the corresponding BSE indices rising by 1.3% and 0.9%, respectively.

The buying spree was seen across the board, with IT, Banking, Oil & Gas, Real Estate, Power, Capital Goods and Metals rising by 2-5%. Consumer Durables, Auto, Pharma and FMCG indices gained between 1-2%.

Within the Sensex, the prominent gainers were HDFC, Wipro, ICICI Bank, Bharti Airtel, Infosys, Reliance, Hindalco, BHEL, Jaiprakash Associates, M&M, RCOM, HDFC Bank, Tata Motors, Reliance Infra, TCS, DLF and Maruti.

Hindustan Unilver was the only stock in the Sensex that ended in the red today.

Outside the frontline indices, the top gainers included Jindal Saw, Kotak Bank, UB, Axis Bank, HDIL, Suzlon, JP Hydro, REC, Allahabad Bank, Welspun Gujarat, Dr. Reddy's, Unitech, Bombay Dyeing, PNB, Idea, FT,

Among the big losers in the broader market were, Essar Oil, United Phosphorus, Tata Chemicals, GMDC, IVRCL Infra, EIH, Bajaj Holdings, BF Utilities, Madras Cement, Dabur India, CONCOR and Aditya Birla Nuvo.

Tea stocks extended their recent good run amid a bullish outlook for prices as output continues to be below par. Jayshree Tea, Harrisons Malayalam and McLeod Russell rallied after tea prices surged by 35% last month over the previous month in Kolkata.

The advance-decline ratio on the BSE was pretty favourable with 1,410 shares rising and 1,101 stocks declining. The turnover on the BSE was Rs49.43bn as against Monday's Rs43.8bn while traded volume stood at 423.1mn shares versus 415.1mn.

Turnover on the NSE was Rs155.54bn compared to Monday's Rs136.34bn while traded volume stood at 970.5mn shares versus 900.6mn shares.

According to SEBI, the FIIs were net buyers in the cash segment on Monday at Rs1.82bn, taking their total net investment into Indian shares this month to Rs46.9bn or US$943.6mn. For the year, they are net buyers of about US$1bn after pulling out a record US$13bn last year.