Indicating that the Indian markets are still attractive compared to certain other emerging markets, Reserve Bank of India has said the volatility in the capital markets in the country is not a cause of concern.

"Though the volatility, as measured by co-efficient of variation has risen, it is not a cause of concern as the speculative interest seems to have declined during the current rally as is evident from a rise in deliveries as a percentage of turnover," RBI said in its 'Report on currency and finance' released in Mumbai on Wednesday.

BSE Sensex and S&P CNX Nifty registered gains of 27.7 per cent and 25.1 per cent respectively during April-December 2003, while the turnover has witnessed even larger growth, it said.

The present rally is not restricted to the blue-chip indices but is broad-based, with the mid-cap and small-cap scrips also registering substantial gains. Almost all sectors, including FMCG, technology and banking participated in the rally, it added.

Strong foreign institutional inflows into the equity markets in the current fiscal have been viewed as one of the major driving forces of the present rally. FII investment in debt instruments increased too. Mutual funds turned buyers in equities but invested a large amount in debt instruments.

On the Indian market, RBI report said although market capitalisation and price-earning ratio rose as a result of the increase in prices, the present P/E ratio on Indian markets still remains attractive as compared with certain other emerging markets.

RBI said along with the rally in cash segment of the markets, the derivatives segment has also been recording large turnover.

In fact, the turnover in the derivatives market exceeded that of cash markets, it said.