Domestic bourses will continue to track global markets in the near term. Global markets have been rocked for weeks by news of problems in banks and funds exposed to risky investment in the US mortgage and asset-backed markets, triggering fears that the cheap credit that has fuelled global growth might dry up. The Japanese yen has rallied sharply against the dollar as investors who had borrowed the low-interest rate currency to buy riskier but higher yielding assets continued to unwind their positions.

Foreign institutional investors (FIIs) have pressed heavy sales on the domestic bourses. The rupee's fall from last month's nine-year high against the dollar was another reason why FIIs took some profits on Indian stocks, to capture some of this year's currency gains. FIIs sold shares worth a net Rs 2548.50 crore in this month, till 14 August 2007.

On the flip side, domestic liquidity remains strong and it may cap downside on the domestic bourses. Domestic private insurance firms have been putting in money raised through unit linked insurance plans (with a very high weighting in equity) in equities. Mutual funds, too, are sitting on cash.

Corporate fundamentals remain strong. A number of firms reported decent to strong results in Q1 June 2007.

India’s long-term growth drivers remain in tact. They are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation