A rising tide lifts all boats.
Even as India comes to terms with it's own problems, the global market environment has improved visibly. While the sensex is still down 5 per cent from the start of this year, the BRIC markets barring India's - Brazil, Russia and China - have all hit new highs. Neighbours like Korea, Taiwan and Singapore have done it as well. Even the US market, the source of all global worries, is not doing too badly . The S&P 500 just cruised to a five year high. Global equities, which looked like a bad place to be in, just a few weeks back, seem to be back in favour with money managers.
This is not to say that global economic concerns are behind us. Far from it. For the moment though, the whole risk aversion play seems to be on the wane; simply put, after the scare earlier this year, global fund managers are ready to put money into emerging market equities again.
Whatever India's domestic problems may be, this has ramifications for us as well. If other equity markets do well and India continues to underperform relatively, as it has this year, the valuation gaps will narrow and money will flow into India as well. The rising tide will lift all boats, including India's, though the degree may vary.
This global context has to be kept in mind for a market like ours which feeds on liquidity flows. Our domestic concerns of slowing growth, high interest rates and valuations remain and they will prove to be obstacles as we move forward. The last word on the US economy has not been said yet either. However, global liquidity conditions are very important and in short periods can certainly overwhelm fundamental factors, as we saw on the way up, just last year. It is a market, we need to keep an eye on which way the wind is blowing.