Equity markets have soared in 2013 but retail investors have largely sat out of the rally. Will 2014 be any different? Nirmal Jain , one of the market’s most astute investors and managing director of IIFL , thinks so. The Sensex, he told ET in an exclusive interview, is definitely headed higher and there could be a 5-10 per cent rally in the next few months before elections. “Effectively it means the Sensex could be on the higher side of 22,000 before elections.” Edited excerpts:The market undertone is bullish. The Sensex is definitely headed higher from current levels and you could see a 5-10 per cent rally from these levels in the next few months before elections. Effectively, it means the Sensex could be on the higher side of 22,000 before elections. FII flows have been reasonably robust despite market volatility, and the top 20 companies now account for 60 per cent of the total FII portfolio in India.Though a host of non-index companies have stable business models, they have not come on the FII radar. If history is anything to go by, then markets have given between 60 per cent and 90 per cent returns in the three years to follow the one when market price-to-earnings is around 14 times.In the last three years, local mutual funds insurance companies and individual investors, including HNIs, have not brought in incremental money to equities. Their participation can make the rally a broad one with small- and mid-cap stocks getting some push. But having said that, market corrections will keep coming, which would be an opportunity.A BJP-led stable government, which is the most likely emerging scenario, could see retail investors returning to markets with a bang.Retail is our forte and we will never shut it down. However, we are profiling our retail investors and will accordingly advise them. In case of extremely small players, who want to invest around Rs 25,000 to Rs 50,000, we are advising them to invest in mutual funds. Retail investors should be guided as per their risk profile, which is what we are doing. If we take customers with, say assets of less than Rs 1-2 lakh, our advice is not to speculate by leveraging or dabbling in derivatives.Recently, we invested heavily in technology and have upgraded it to bring it to the level of top banks in order to cater to retail and institutional players. We will further expand into retail segment.Stock broking is a cyclical business. It has gone through enormous structural changes in the past five years. The business mix shows that volumes are dominated by futures and option and in that, too, options has a lion’s share where brokerage fees are extremely thin. Cash market volumes are near historic lows. The change in business mix has tilted towards options trading. Broking has turned out to be low yielding.But there is hope now as volumes across segments could revive due to rising market levels. Brokerage, per se, is not a significant cost factor for clients.We expect further earnings growth as the lower rupee will be earnings-accretive. GDP has shown an uptick so earnings should have bottomed out. Also, the rural economy will make up for the slowdown in urban demand.