The winning streak has finally been snapped. The markets squandered a firm start and slid into the red in late trade amid heavy volatility. The Nifty closed at 5,023 down 27 points, while the Sensex shut shop at 16,698 down 86 points.

R Sreesankar of IL&FS Investsmart said there isn’t any reason for the market to just rally from these levels quite sharply. “The markets will be more rangebound unless some clarity comes in with regard to inflation. Inflation is the primary concern here and because of this you have already seen a 50 bps increase in CRR rates. Second are higher crude oil prices. How much of an energy price impact will the government be able to take or how much can they continue with without passing it on to the consumer? If energy prices remain at this level, input cost for various other commodities and industries are also going to go up. So, one is going to see a cost-push.”

He feels it is going to be a more individual stock specific story than anything else at this stage. “Investors may move out of some of the great stories and into sectors that have been underperformers like FMCG, or pharma. “These stocks, for the better part of four years, have underperformed and will tend to outperform in this market right now.”

A lot of banks are beginning to see an increase in defaults on various loans, he said. “So, there is going to be a problem from the financial services side.”

On capital good companies, Sreesankar said there are input cost increases. “We have already seen margin pressures coming for something like a BHEL. So, equipment manufacturers are feeling the pinch. There is pressure building up on even capital goods equipment manufacturers.”

KR Bharat, MD, Advent Advisors, said the markets might not be out of the woods. "The worst not over in the US, some indicators are still negative. We are concerned about economic data. Domestic inflation, high crude, and commodity prices are a big concern. However, the long-term trend remains bullish but we see short-term volatility in the markets."

He feels the upside will not be capped in the long-term. “I am not sure about the bottom but would rather wait before assuming that the worst may be over.”

According to Bharat, inflation is a big concern. “We will see a tighter liquidity situation, which will have a negative impact on equity markets.”

He is bullish on the IT sector. “The long-term cycle is in an uptrend and hence we remain bullish on the sector.”

Anil Manghnani of Modern Shares & Stock Brokers said the upside is a little bit capped, at least in the short-term, at may be 5,130 to about 5,170. “I would like to see how the week closes, because although the Nifty is above the 50-week moving average, it will be interesting to see if it can close above it by the time we finish on Friday. The Sensex is right around the 50-week, which is at about 16,700-16,800. So, it will be crucial to see if we can close above 16,800 at the end of the week. One can start looking more comfortably on the upside. I do feel we have one down leg first. What we do on the down leg would determine that this is a fresh breakout or not. I don’t see it as a fresh breakout right now, and that’s why I feel the upside at least in the short-term is a little capped.”

Dipan Mehta, Member, BSE & NSE, said given the last 5-6 days of positive closing for the Sensex and the market as a whole, it seems that some amount of confidence has come back. "It is being reflected in the indices and the way midcap stocks have moved up."

He feels that if RBI does something drastic, like raise interest rates, then it is going to damage sentiment, which in turn could affect the markets.