Taking a cue from the global developments, Foreign Institutional Investors (FIIs) have dramatically retreated from the Indian capital markets, forcing the market regulator to come up with a slew of measures to contain this exodus as well as to ensure sustained FII inflows.
All seemed hunky-dory for the Indian stock markets until a year ago, as the country's bench-mark index was sailing high, defying gravity, while other major indices fell apart. When Sensex reached a historic high of 21,206 points on January 10, 2008, many analysts even predicted that the market would soon touch the 40,000 mark.
Even as the US subprime crisis unfolded through the second half of 2007, it looked as though India remained resilient to the crisis—Sensex rose by nearly 39% during that period— and the decoupling theory advocated by the then Union Finance Minister P Chidambaram was proving to be right. But eventually, the US-originated subprime crisis turned into a contagion and began spreading to other countries. The Wall Street mayhem unnerved the European and the major Asian stock markets, including India.
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