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Markets have realised this right after cheering the NDA's victory.

On the day of election results, Nifty 50 witnessed high volatility as the index swung in the range of 3.7%. It crossed the psychological mark of 12,000 (and on the S&P BSE Sensex 40,000), but couldn't sustain those levels. In fact, at 11,657, Nifty 50 closed 0.7% lower on the day of election results.

Still, that hasn't acted as a deterrent to global brokerage houses. Some of them are giving lofty targets on the Nifty and the S&P BSE Sensex. According to certain brokerage houses, the Sensex can rise to 45,000 and Nifty to 13,500 by the end of June.

Will Modi 2.0 modify the market outlook?

Modi 2.0 has undoubtedly eliminated the risk of political instability.

However, chronic issues such as unemployment, inadequate infrastructure, a slowdown in agriculture growth, core sector growth, consumption, and fulfilment of basic minimum aspirations of millions of Indians, among others still remain partially addressed.

Will NDA, in its second innings, deal with them decisively?

Answer to this question will guide the economy and markets.

If the Mod-led-NDA's victory has given you an adrenal shot, it's time to calm your nerves.

As you know, markets look extremely expensive at this juncture in the absence of any significant recovery in corporate earnings.

For earnings to recover, now the economy has to fire on all cylinders.

And foreseeably, with asset quality issues of the banking sector cropping up frequently, the newly elected government will find it difficult to turbocharge the engine of economic growth. The problem of shadow banking now threatens to damage the other sectors-another cause of concern.

The only blessing in disguise is there won't be much change in the approach to policy.

Hence, Modi 2.0 can start where Modi 1.0 left-thankfully, no time will be wasted in adjustments.

Minimum government and maximum governance was the promise of NDA in 2014. This doesn't seem to have been fulfilled. The government continued to deal with many issues centrally. It didn't take any decisive action about Public Sector Units (PSUs), although it initiated the merger of state-owned banks towards the end of its tenure.

Moreover, its aggressive interventions labelled as tax compliance seem to have created a hostile environment for the taxpayer.

Juggling schemes with a touch of bravado attached to each of them won't work anymore.

During elections, we had highlighted four scenarios.

1. If the Modi-led-NDA government wins the second term and earnings grow as expected, the markets may rally unwaveringly. Mid-cap funds, small-cap funds, focused funds and multi-cap funds might do well under such a scenario.

2. If the Modi-led-NDA government is re-elected, but corporate earnings fail to grow, markets will remain sideways and may even fall. Large-cap funds, large & mid-cap funds, value funds, and aggressive hybrid funds might do well.

3. If Mahagathbandan sarkar comes to power, markets may initially fall, but if corporate earnings pick up markets might still rally. Aggressive hybrid funds and large-cap funds might work well under such circumstances.

4. If the Mahagathbandan sarkar gets a term, and if earnings fail to revive, the market might go into free fall. Possibly none of the categories may do well. Given the possibility of a sharp Rupee depreciation in such a case, gold ETFs might assume importance in portfolio allocations.

Now that scenario 3 and 4 are out of the question, tracking how the earnings recover will become even more crucial.

In the past few months, private consumption, which had supported the market so far, showed some signs of waning. This was evident from falling auto sales and cautious guidance by companies focused on consumer spending.

As remains the question of infrastructure development, sooner or later the government may find it difficult to finance it as it strives to manage the fiscal deficit. Good infrastructure is necessary for a country to attract foreign investments and clock high growth.

So does that mean we are back to square one despite BJP getting an explicit political mandate?

Modi 2.0 will have to think of innovative ways to foster Foreign Direct Investments (FDI) in India. To prop up the rural economy, it will have to handle the agricultural distress more effectively. The government will also have to introduce the next round of reforms-land and labour.

It will also remain extremely crucial to see how the government resolves the present financial sector crisis. Because that might hint at how it plans to fund the next investment cycle. Otherwise, the election outcome will make no difference to the Indian economy and markets.

What should you do as a mutual fund investor?

The Modi-led-NDA's victory hasn't changed the prospects of your mutual fund schemes. Hence, if markets rally over the next few weeks, treat them as opportunities to realign your portfolio. Replace inconsistent and underperforming funds with consistent and performing mutual fund schemes.

If you want to invest fresh money, be cautious.

Depending on your financial goals and the risk appetite, you should decide your allocation to equity as an asset class and to equity mutual funds within that.

[Read: Is Your Mutual Fund Portfolio On Track To Accomplish Your Financial Goals?]

For now, staying with large-cap funds, large & mid-cap funds, and value funds will pay off well. Moreover, if India Inc posts good results over the next few quarters, you could increase your exposure to multi-cap and mid & small-cap funds.

That said, it's best to invest in diversified equity mutual funds through Systematic Investment Plans (SIPs) and opt for direct plans.

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