Leading brokerage house Edelweiss has said though third quarter earnings will be better-than-expected, the street is worried about the widening fiscal deficit in India and the asset quality of banks.
Of the eight trading sessions in the new year, the market just managed to close in the green only for two days.
However, many foreign brokerages like Deutsche Securities have pegged the year-end target for the BSE Sensex at 24,000 and for the Nifty at the 7,150 point on the back of a possible decisive electoral outcome.
"The mounting pressure on fiscal deficit is the biggest worry of the market, as the concerns from the CAD and rupee volatility having been successfully addressed. The deteriorating asset quality of the banks is also a major concern even though overall earnings will be better than expected in the current results season," Edelweiss group chairman and chief executive Rashesh Shah said.
"We are still on the edge, the economy has just recovered, and not made a come back. Probably post-elections we can see some sustained growth as the frenetic actions by the government in the past four months and the RBI under Raghuram Rajan will take some time to show tangible effects," he added.
On the impact of the new party AAP on the markets and the forthcoming hustings, Shah said they could clean up the system to a considerable extent but hinted that the fledgling party may also rob the leading parties of a clear mandate, which may disappoint the street.
Fiscal deficit till November reached a worrying 94 per cent of the annual target, while revenue mop-up was faltering at around 12.5 per cent till December. The government's divestment effort has also come a cropper with it managing to garner only Rs 3,000 crore out of Rs 44,000 crore planned for the fiscal.
The current account deficit, which stood at 4.8 per cent last fiscal, was the biggest worry both for the market and the government, coupled with the rupee fall which had touched a 68.85 in August.
Asset quality of banks has been worsening, prompting the central bank to warn that gross NPAs could touch 4.6 per cent by September this year.
In its financial stability report released on December 30, RBI had flagged the NPA issue saying the health of banks worsened in the past six months.
"The strain on asset quality continues to be a major concern," the report had said, and warned that gross NPAs could touch