At 6,000+ the BSE Sensex had discounted it all -- unimaginable quantum of foreign fund inflows, good monsoon, return of the NDA alliance to power in the general elections. And of course, sustainable excellent numbers from corporate India. In short, nothing could go wrong. We were on our way to Sensex 7,000.

Then, reality came knocking on our doors in the form of political instability.

We were wrong then (with the benefit of hindsight).

We are probably wrong now.

There is no denying the fact that at the start of 2003, India was a grossly undervalued market (for the initiated, valuations had dipped to about 8 times earnings; presently we are about 14 times earnings -- which can be classified as an acceptable price-earnings multiple in line with the growth prospects of the economy -- 8 per cent real growth + 6 per cenr inflation).

The attractiveness of the Indian stock market was enhanced by the persistent decline in returns in debt markets globally. Naturally, there was a shift in funds to equities. The foreigners too chipped in with greenbacks, boosting our confidence of earning good returns from investments made in the stock market. The rally was on.

But as smart investors expect, the markets overshot on the upside, helped by nice to read reports on India becoming a superpower et al. And then came January and concerns about FII inflows. February actually witnessed a net outflow in excess of $350 million.

April witnessed the re-emergence of the non-NDA alliance. And so far in May FIIs have been net sellers. The optimistic investor, who was 'heavily into stocks', has got jolted out of his make-believe world. Only the monsoon and corporate results, both of which are very important fundamental factors, have been in line with expectations. But then such was the euphoria even one adverse development could have triggered a correction. And when something can go wrong, it does.

Now, to current times.

There is pessimism everywhere. Selling in the stock markets is widespread and ruthless. FIIs too have turned net sellers. Likelihood of a hung parliament is what is presumably causing this. But, aside from these 'sentimental' factors is there much change in the prospects for the Indian economy?

Probably not. And that is because no matter which political party comes into power, reforms will continue. The speed of reforms could change, but they will continue. The manifestos of various political parties make this apparent. And then there is the forecast of the normal monsoon, continued optimism of the corporate sector and the increasing interest in Indian's outsourcing potential.

Although the base year effect will ensure that GDP growth slows down, the underlying 'bullishness' (from an economic growth and not stock market perspective) is apparent. The Indian story is still alive. Only our vision is blurred by current events.

Smart investors know that just like how markets over shoot, they can also fall more than they ideally should. There is an almost negligible chance that an investor will be able to make a purchase at rock bottom and sell at the peak level. They know that one must average out the cost of acquisition or the sale price by buying or selling in small quantities over a period of time.

Maybe for the seasoned investor the time to invest a small portion of his/her investible surplus in equities has come.

To quote a renowned economist -- "It's just one of those things that markets do now and then; and it, too, shall pass."

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