The Sensex gained by 15 per cent in this period. These fund-flows only accelerated in the following month and in the first two weeks of May. April saw an inflow of $224 million and the first half of May has seen an additional $336 million. The gain within this period in the Sensex has been by compounded by 20 per cent.

But the question that is being repeatedly asked is whether these FII flows are sustainable and will the presence of this money only increase the volatility in stock prices? Another question is whether a portion of these investments are from hedge funds? On Monday, markets across the world witnessed profit-taking in the aftermathof the chairman of the US Federal Reserve hinting at an increase in interest rates in an attempt to cool down that economy. The fall in Indian markets is being linked to that statement as traders felt that FIIs could turn out to be sellers on Monday.

Though the FIIs came in and bought in a big way on Monday, the reality behind the rise in Indian stock values is that it is a function of liquidity in foreign markets. The fact is that FIIs are the only buyers in the Indian stock market today. Most other players, both domestic funds as well as speculators and investors are not entirely convinced that the turnaround story being touted as the reason for this buying is entirely true.

Corporate performance for 1998-99 has not exceeded expectations, the latest industrial growth figures are at best paltry, exports are only just showing signs of picking up, many other indicators such as increase in diesel consumption are nebulous at best.

Even the nature of the rally is narrow. Only the top 50 stocks, coupledwith some sectoral stocks have witnessed any worthwhile activity. There has been little or no participation from the retail investors. So the wealth effect has been restricted despite the huge gains that the indices have posted and does not point to the revival of overall sentiment within the capital market. So even if the the markets have been re-rated and may not witness a correction soon, it will be a long while before the wealth effect trickles down to the smaller stocks and triggers a complete revival in the capital market.