Brokers expect the next big trigger for the equity market coming through 'positive developments' in the annual Union Budget later this month.

The market is expected to remain rangebound in the near term but a pre-budget rally on the back of positive 'news' is very much on the cards, they add.

Expectations are building up that the Budget will focus on domestic growth, continuation of policies and schedules for execution of promises made by the government, such as the implementation of value-added tax.

• Run-up to the Budget 2005-06

Deepak Chhabria, COO in charge of institutional equity at IL&FS Investsmart says, "The Budget will offer the next trigger, as the markets will look for continuation of policies and schedules for execution of promises made by the government."

Key among the proposals will be implementation of VAT, rationalisation of direct and indirect taxes, raising sectoral investment limits and moving ahead on the securities transaction tax.

To summarise, India is on the cusp of a multi-year structural bull market in equities led by economic growth, he said.

While the direction over the medium term is definitely on the upside, but to generate above average returns, investors will have to come to terms with near term volatility, Chhabria said.

Nishid Shah, chief investment officer at Birla Sun Life Mutual Fund finds Indian valuations attractive. "India is among the fastest growing world economies with expected GDP growth of 6.5-7 per cent in few years. The outsourcing opportunity along with strong domestic economic growth will drive earnings. The global competitiveness of Indian Inc has already being vindicated by the large outsourcing happening across sectors such as IT, pharmaceuticals, auto components, capital goods, engineering. India has now become a must destination for foreign investors given its reasonable valuations," he adds.

Ved Prakash Chaturvedi, CEO at Tata Mutual Fund says, "One of the important events in the current year would be the IPOs from certain large companies especially in infrastructure. If this brings new retail investors to the market, it would enhance equity ownership by domestic investors which will be a long-term positive. Implementation of VAT would significantly enhance the conviction that international investors and streamline the process of tax compliance. In many ways, it seems that this year will be a year of good cheer but not euphoria."

However, it does seem that if the capex cycle takes off as expected, and credit offtake improves, demand for money will increase.

However, outlook for interest rates would depend on supply of money both from domestic sources and from overseas inflows. On balance, one can say that may be there could be an upward bias on interest rates especially if overseas liquidity flows remain moderate."

Nandan Chakraborthy, head of research at Enam Securities says, "In the near term, at least up to the Budget, the markets are likely to bounce back, with the tailwind of good news from the government, such as further banking, taxation, duties and infrastructure reforms. By that time, with the assembly elections in Bihar, Haryana and Jharkhand will also over. These are the only state elections due in this calendar year, and the government will know its support base from the state governments better."

He adds that current valuations of the Indian markets are well within the historical range, and actually far cheaper if adjusted for the far lower interest rate regime than five years back.

However, given the precarious state of global geo politics, there could be negative surprises which include India in its maelstrom at indeterminate times.

These include stand-offs between various global blocs on oil, nuclear use, among others. Even at a less macabre level, there could be huge currency swings, especially in the dollar which could affect various country-economics and funds flows.