The market fickleness is a serious problem. I do not think overseas markets suffer from this malady. Indeed, a new area of research opens up here for global fund managers.

Volatility has long been measured in terms of Beta and others, and this factor is definitely taken into consideration in choosing a stock. In fact, traders love to locate highly volatile stocks, because it is only here that they could spin money.

But the volatility that afflicts the Indian market is of a peculiar kind making the life of the common trader quite miserable. The week that went by was proof enough. The most common explanation for this is the contradictory and sporadic reports on the exit poll front.

Last week, I had argued that lack of majority is no threat to capital markets. But surely, the market players see it differently, if one were to go by what we saw in the beginning of the week.

The reason could well be that market is guided more by sentiment than rational analysis. And herein lies tonnes of trouble.

Take the Thermax stock for illustration. This stock soared up from Rs 198 to Rs 306, when actually it had announced very poor results. Surely, there was no rationality here. Whoesoever went bullish, (and they did it so successfully) had different sentiments about the stock. Rationality takes several hues, explained a trader. As the bad news is over, it is time to be optimistic. The worst is behind you!

Not so, to a serious analyst. In this particular case, even the company spokesman had explained how it will take time for Thermax to do much better. The logical thing was to wait until the next period reporting. No, the market would not do that. It took the stock up from Rs 195 to Rs 300. And then, it is there for everyone to see. The next result, as expected, was no great improvement and disappointing. It is only at this juncture that the holders in the scrip started unwinding. It came down all the way back to Rs 215. So, anyone who played by the law of rationality lost and the one who sailed along with the market sentiment won by getting in at Rs 197 and quitting at Rs 300. The Thermax case is just one example of the market's illogical behaviour.

And the market behaviour this week made me to take another look. No one indeed appears to be interested to go into an in-depth analysis of what difference would the question of majority or no majority make to the economy. Apparently, the market's logic is superficial. Yet, let us try and impart a meaning to the market fears. Surely, India's performance on the economic front in the last 18 months is something to feel comfortable about, in comparison with what is happening elsewhere in south east Asia.

But that is not to say that all is hunky-dory and well. Take the public sector deficit. The large borrowing of this sector is a drain on the savings of the nation. And the savings are about average. And let us not forget that the disinvestment proceeds of the PSUs are being used to balance the revenue account.

It will be foolish to feel happy that India has been well protected from the financial storms that blow across the region. The financial health of the nation internally is not all that pink.

If a BJP government comes in with majority, it could be in a position to address the policies more squarely without having to compromise to accommodate alliance partners.

I did argue last week that even BJP would have to take care of the interests of all segments. This is true to an extent. But a majority will give it the political courage to strike out on the reform front more boldly than was possible hitherto.

The same can be said about its stand on the Seattle negotiations. Coming back to the stock markets, the convulsions we see is pulls in different perceptions, and different game strategies - and all this at a time when the underpinning election results are on the anvil.

Pharma and infotech stocks have broken through their previous highs and are sailing into new territories. Re-rating of the stocks is taking place instantaneously in synergy with new molecule discoveries and expectaions of better quarterly results. Market players are at their aggressive best.

If one were to draw up an appropriate linear programmiing model for stock prices, and assign weightage to different factors along with inter-factor synergies, the factor assigned for BJP majority seems to be coming in strongly in the market. And in synergy with new molecule and expectations about quarterly results, the output results in surge in stock prices will soar, if BJP majority expectation is high. But as the opinion on the majority factor changes, the total output swings wildly. In such a background, the market becomes the ideal casino for the ace trader as also money-powered operators.

While the upside potential of the stocks that rise look alluring, it is scary to think of the levels to which they can crash, if the majority factor turns out to be not so favourable. The synergy will multiply negatively. In such a stormy scenario, you have only two alternatives. First is to sail with the market sentiment with all the attendant risk. And the second is to stick to your benchmark evaluation for stock price. And it would make ample sense to stick to the return on total networth and reasonable price-earning multiples. That is the best way to structure your risk-return approach.