Cheer in the markets

But caution is warranted about headwinds

The stock markets responded positively to predictions in the exit polls that the incumbent National Democratic Alliance government would easily win re-election. Over the course of trading on Monday, market indices hit new all-time highs and posted their biggest one-day gains in 10 years. The rupee appreciated by 49 paise, the biggest single-day gain in two months, to close at 69.74 against the US dollar. Some exuberance at the prospect of a stable government is understandable. However, it is relevant to ask whether an over-reaction to opinion polls — or even to the final results on May 23 — is