“The movement in the Indian markets over the last month has been backed by strong liquidity inflows. We believe this phenomenon is part of a temporary de-coupling effect experienced by the Indian markets as the core India story is based on its domestic consumption and infrastructure growth. We believe though the Indian markets are tending towards fair valuations... the FII inflows into India will decide the trajectory from hereon,” said Kotak Securities Ltd managing director A S Narayanan.

Stepping up their presence in India, FIIs have invested over $1.80 billion — taking the total for 2007 to over $11.3 billion — in stocks since last Wednesday when the US Fed cut interest rates to pull the economy out of a recession and tackle housing and subprime woes. “FII money is going into top blue chips. The rally should have spread to the broader market much earlier. Select stocks in the Sensex have shot up to dizzy heights. Investors should be careful,” said top BSE dealer Pawan Dharnidharka.

“Our house view continues to remain cautious on the overall market as the valuations are in the expensive zone and growth is tapering off. However, strong liquidity will continue to chase risky assets and drive valuations beyond fundamental fair valuations,” said Kunnambath. The market is expecting more FII inflows this year and is in for some volatile periods as the Reserve Bank of India (RBI) is expected to take measures to neutralise the inflow impact on the economy and the rupee through various measures.

... contd.