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The Fall And Rise

The benchmark index, the Sensex, has shot up by over 100% to cross 9,000 points for the first time in its history.
Buyers, like the aggressive foreign institutional investors who have pumped in more than $10bn this calendar year, are excited about India's growing economic strength.
Others are convinced that the economy is fundamentally strong and believe that the country's financial markets are more mature than those of other emerging economies.
More importantly, unlike in the past the regulators think this time there is no scam that is lurking on the horizon.
Puzzle
Over the past four months, the Sensex has risen and fallen only to rise again, confounding the experts.
The questions that are being asked are:
Does anyone know why the Sensex is going up?
Should small investors risk a dive into the seemingly-attractive equity pool?
When the Sensex began its dizzying rise in May 2004, there were a few positives.
The economy was - and is still - growing at 8% every quarter, the foreign exchange reserves were at high levels of more than $100bn and corporate earnings were healthy.
Liquidity
Over the next few months, the market discounted negatives like the tsunami, floods in major cities such as Madras (Chennai), Bangalore and Mumbai (Bombay), high global crude prices and the 2005 budget that was focused more on welfare schemes for the poor and less on reforms.
But as the months passed by, it was clear that macro-economic fundamentals - such as agricultural growth and industrial production - played a minor role in the Sensex's rise.
Core sectors or infrastructure were not doing well with low quarterly growth rates.
The feeling in the market was that the reason the Sensex was going up at a frenetic pace was due to huge money flows from foreign and domestic investors.
Globally, institutional investors seek to invest in emerging markets.
New funds - from Japan and west Asian nations - are eyeing the attractive returns in emerging nations,...