Markets Recovering

The talk of a financial Armageddon which took hold earlier this year seems to have vanished. The attention now is focussed on the extent and timing of the recovery in developed markets. Germany and France are back on terra firma with positive GDP growth in the latest quarter. The good news in the US is that the economy shrank just 1 percent in the quarter ended June 2009 as compared to a 6.4 percent drop in the previous quarter.
Stock markets around the world have been quick to recognise what appears to be a momentous inflection point. Not only have the markets climbed a “wall of worry”, the mood of investors across the globe is definitely more optimistic.

More often than not, equity markets are propelled by “animal spirits”, herd behaviour and constantly changing perceptions of “relative value”. Fundamentals do matter, but the power of capital flows is far more dramatic in the short term. So what are the implications for committing capital given the current mindset?
It is quite possible that the improving sentiment has a beneficial impact on the real economy in terms of a greater propensity for capital spending by India Inc. and higher levels of consumer spending. Keep in mind that the current government is eager to protect the financial well-being of rural India.