But at almost 25 times historic earnings, India is one of the most expensive markets in the world. In fact, India’s valuations are next only to China’s 52 times (which to my mind are not only suspect but unsustainable), Japan’s 35 times (I keep wondering just how this slow growing economy has been able to capture such high valuations consistently), Nasdaq’s 40 times (led largely by higher valued technology and internet businesses). Every other significant market — Hong Kong’s 19 times, UK’s 13 times, Dow Jones’ 17 times, Brazil’s 15 times and so on — is cheaper than India’s.

Many analysts believe that one quick implication of this high valuation would be a crash if global markets contract. But I think that’s where analysts need to study the global numbers a little more closely. Finally, money that’s comfortable with risk will flow to economies, markets and companies that deliver higher growth per unit of risk. On that front, I believe, the India story remains attractive and much of the money will flow here.

And even if there are faster growing countries or markets, they don’t have the scale of operations or the depth that Indian markets provide today. There are 10 companies with a market capitalisation of more than Rs 100,000 crore or $25 billion (Reliance, ONGC, Bharti Airtel, NTPC, DLF, Reliance Communications, Infosys, ICICI Bank, BHEL and TCS); a year ago there were only two. And we are not even factoring in the derivatives market yet. Yes, in absolute terms, the share of Indian market capitalisation in the world’s market capitalisation is just 2.3 per cent, but that’s a big, big jump from the less than 1 per cent market share it had four years ago.

... contd.