The markets made fresh lifetime highs this week, but have now got into a bearish mode. Reasons are many, both domestic and global, with politics playing pivotal role.



The initial euphoria over the victory of BJP in assembly elections has come as a cropper of sorts, with the party not looking in a position to form a government in Delhi, while its victory in other states, except for Rajasthan, was largely factored in by the markets. Also, experts say that whether this 4-0 sweep would translate into a similar event in 2014 general elections looks not-so-sure.



"There was a lot of political hope that got built in over the last couple of days ... The market is now beginning to understand that the state assembly election results do not necessarily lead to a very similar outcome at the general election level," says Manishi Raychaudhuri, MD & HoR, BNP Paribas Securities.



Most of it now depends on what opinion polls tell us of what is going to happen in general elections, say experts.



"It was expected that the markets would take the assembly polls outcome relatively positively. Global backdrop also looks relatively upbeat, with American macro numbers looking up and WTO accord in Bali being signed over the weekend. So, with the overall mood fairly pleasant for the global markets, it was expected that the domestic market would take it positively. A lot of will now depend on what the opinion polls show over the course of January, February, March vis-à-vis the general elections in May next year," says Saurabh Mukherjea, CEO-Institutional Equities, Ambit Capital.



If there is positive sentiment post general elections, how far could Sensex rally? "In a scenario where we have tightening but the markets do not take it too badly, where we have an improvement in governance in the second half of 2014. In that sort of scenario Sensex at 25,000 is not out of question," Saurabh Mukherjea says.



Some experts also believe that elections are a short-term trigger for the market, and really do not matter in the long run.



"I would not really look at the elections as a reason to stay invested or not to invest. As we have always been saying, elections really do not matter in the long run. What we need to look at is the underlying business conditions ... the outcome of elections does not really worry us so much as the economy. If you look at the last 30 years, Indian economy has grown at an average of around 6-6.5% and that is irrespective of the governments which we have had over these years," says IV Subramaniam, Director, Quantum AMC.



The Sensex on Monday rallied as much as 487 points to hit lifetime intraday high of 21,483.74. The 30-stock index closed 329 points higher at 21,326, a record closing high.



Besides politics, the major factor that is driving the market sentiment is flowing from the US.



Just days back, the US again triggered a debate over its quantitative easing programme, with a top Fed official saying he is open to curtailing the $85-billion-a-month purchases this month itself.

