For Gurunath Mokashi it was a rude introduction to the markets. Last week, Mokashi, a small entrepreneur from Latur in Maharashtra, decided to put about Rs 150,000 into the stock market.

Mokashi's broker reckoned that he would be able to earn returns of between 15 per cent and 25 per cent in the fast-moving market.

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That estimate looks wildly optimistic at the moment. Mokashi, who figured that the market might rise after the elections, couldn't have timed his entry more badly.

On Monday he watched with alarm as the Sensex plummeted out of control and fell by 565 points. And, the next day he watched in astonishment as it defied the pundits of doom and climbed by 372 points.

What does Mokashi plan to do next? Amazingly, he hasn't panicked and lost his nerve. He's still bargain hunting and is keeping an eye on the next round of IPOs that are about to be unfurled in coming weeks.

"I am confident that even though they might not touch stratospheric levels and may not be oversubscribed like before, I will be happy with even a 10-15 per cent appreciation. I am more grounded now."

Mokashi reckons there's still hope. He's even thinking of buying shares in Prannoy Roy's NDTV which listed on Wednesday. "At Rs 124, it listed at a premium despite the meltdown," says Mokashi. The issue price was in the price band of Rs 65-70.

What next for the markets? In January the Sensex effortlessly climbed to 6,194. Now, it's once again struggling to cross the 5,000 mark.

Investors with long memories are suddenly recalling that the Sensex hit 4,600 during the peak of the Harshad Mehta bullrun back in 1992. Twelve years later it is still hovering at around the same levels.

But will it climb upwards once again? Amazingly, investors who've had their fingers burnt are still sounding optimistic.

Says Navin Roy, dealer at Taib Securities: "We expect the volatility to persist till the Budget but the next trigger will be the announcement of the Common Minimum Programme."

Adds Gagan Banga, national sales head of online broking site, Indiabulls.com, "This market condition is not about a particular institution going into a particular mode but because there is no serious buyer."

Obviously, the surprise election results have hit the markets. But that isn't the only factor responsible for the sudden downtrend.

Stock markets the world over have been hit by a triple whammy caused by rising oil prices, a possible slowdown in China and the fear that the United States is about to raise interest rates.

In India the impact of all these was felt this week when the 30-share Bombay Stock Exchange Sensex fell from 5,686 on May 5, to close Friday at 4961.57.

"Unfortunately, it all happened at the same time," says Manish Shah, head retail sales at broking firm Motilal Oswal Securities.

The result is that the foreign institutional investors are forced to move cautiously around the world.

According to the  EmergingPortfolio.com Fund Research, the combined emerging market equity funds tracked saw outflows of $3.2 billion in three weeks.

The Asian redemption alone, excluding Japan, was $440 million. EPFR says that Global Bond Funds too saw their worst week a fortnight ago, with outflows of $5,532.2 million.

In fact, surprisingly enough India is faring well compared to others. Based on SEBI data, since January 2004, the FIIs have bought Rs 15,592.3 crore (Rs 155.92 billion) of paper. During the same period the FII outflow until Wednesday was around Rs 2,968.40 crore (Rs 29.68 billion).

Also, there's the oil factor, which is making markets jumpy. A few days ago, oil prices were at an all-time high at over $40 a barrel on the NYMEX. Premium crude oil prices shot up in New York trading based on fears of slack production in Iraq, to low inventories.

Also, China's oil imports have risen dramatically this year and that's resulting in tightened supplies.

What did all this translate into? When the market began to fall steeply the National Stock Exchange shut down its terminals as many brokers were unable to pay up the margins, which had shot up to 70 per cent due to the volatility, on their futures and options contracts.

"Most of my clients were losing in intra-day trading," says J Shekhar Rao, the head of Balaji Equity Ltd, a 13-year-old broking firm in Hyderabad.

He claims that just in the Vijayawada region alone, about five brokers lost around Rs 60 crore (Rs 600 million). On Thursday, Rao says that his clients notched up losses of Rs 50 lakh (Rs 5 million). "They had all taken long positions and were forced to square off at lower rates," he adds.

Or look at sub-broking house Kaycee Financial Services. "On any single lot, people lost Rs 200,000 to Rs 300,000 in the F&O market," says broker Nilesh Dedhia.

Even so, the mutual funds are buying. Between May 1 and May 18, the funds purchased Rs 3,658.1 crore (Rs 36.58 billion) while net sales were Rs 2,305.1 crore (Rs 23.05 billion). On May 17 alone, the day of the bloodbath, they bought shares worth Rs 364.6 crore (Rs 3.65 billion) with a net outflow of Rs 102.1 crore (Rs 1.02 billion).

Brokers claim that markets will be volatile for at least three months and could start rising after that. "I would be upset if the Sensex didn't touch 5,700 to 6,000 by December end," says the head of a leading broking firm. Adds Taib's Roy, "The long term upmove is broken for now."

But how will this current market scenario affect the public issues? Already, despite the fact that they've been oversubscribed several times, most of the public sector issues, which hit the market in February-March are trading far below their offer price.

With an issue price of Rs 485, CMC is currently trading at Rs 446.80, a drop of 7.88 per cent. ONGC is down 6.45 per cent from its offer price of Rs 750. IBP is down 21 per cent to Rs 490.20 but the lone survivor is Dredging Corporation currently trading at Rs 409.15, up from its issue price of Rs 400.

Then there are those waiting in the wings. They include United Television and Shoppers' Stop. And the Tata group's crown jewel Tata Consultancy Services is also around the corner. How will the current situation affect them?

Karvy's Baliga, feels that with enough paper already in the market, the new issues will not be heavily oversubcribed like their predecessors.

"They will be affected to that extent. But if the index stays at 5,200 levels, there is no danger of them being shelved," he says. Adds Roy, "Investors will eye IPOs cautiously as many of the public sector issues are down."

Also, how much wind is there in the statements made by the newly anointed Prime Minister Manmohan Singh and his Left Front allies?

"Not much. The fact of the matter is that reforms for the last ten years have not reached rural India, which constitutes 70 per cent of India. And there is nothing new that the Left Front is saying today that it didn't say earlier," says Roy.

Adds Baliga, "ONGC and GAIL were only going to dilute in favour of the public and not privatise. So what's the big deal."

By now, the market, which largely runs on sentiment appears to be finally coming to terms with ground realities. After opening 80 points down, it closed positive on Friday at 4961.57. And lots of players are gung-ho about the future despite the current volatility.