Right now, things are looking rosy, with corporates reporting good growth in sales. Bottomlines are doing even better. It is no surprise that FIIs are flocking to Indian shores. The expectaion that GDP will move up 7 per cent will make everyone look forward to sustained corporate performance over the next two to three years. If GDP can grow by more than 18 per cent, well-managed corporate can do even better.

But we need to look beyond that. Cement industry is doing well, plausibly because of the impetus in the budget for housing, and also the pick-up ininfrastructure industry. The pick-up in steel is coming from not only from increased activity in these sectors, but also from the auto industry. The robust growth in pharma industry reveals that public spending on medicine is rising, coming from changing lifestyles and attitudes. This change pervades through all sections of society. But here too, the heightened activity in cardiovascular and psychiatric medicine shows the potential of the upper classes to spend more for medicine.

In the electronic and whitegoods industry, volumes keep expanding as prices keep expanding. New game rules are being set. And Videocon has happily plunged to tap the ever-expanding markets using the paradigm of products at affordable prices, in the whitegoods sector. Still, the more serious and reflective investor cannot let his guard down. He needs to look for the roots. Take the demand pick-up. This has come about after a long hesitation.

Remember the time when Chidambaram hoped that the salary increases to central governmentservants would flow into the market and give a fillip to industries. That never happened.

Next, you had everyone projecting that increased farm income will end up in demand for goods. That too did not happen for over two years. It has happened now, but with a long time lag.

Surprisingly, the capital goods industry is showing signs of revival. The investor can look forward to this as well as the increasing index of business confidence. Though there is a flush of growth just now across several industries, the investor needs to look deeper. He needs to assure himself that this trend would continue.

This becomes important because stock prices today are about 40 per cent higher than what they were a few months ago. Such a rise has taken place both because of improved bottomline performance in recent reportings, but also on expectations of sustained growth in the future.

If the hopes fail to materialise, stock prices can nosedive. Anyone who has followed how stocks are rated and re-rated over the yearsbased on their annual reporting would unerstand this.

The worry is higher since it is the FII investments that has jacked up stock prices. FIIs do argue that Indian stocks were underpriced. But FIIs entered the market in a big way when the stock market was at its bottom at around 2800. Yes, they have continued to invest on the way up as companies reported better performance. But is there anything to stop them from booking profits if they see a 40 per cent gain? This should make you think twice before placing an order at a high price.

There is an exception however. And that is the trader, who not only takes that in his stride, but in fact thrives on it. He makes money as stocks move up and does again when it comes down. Just change your coat from bull to bear! I believe the dominant class of traders in the Indian market, including the FIIs fall into this category. it is the small investor who will get burnt, if he is not careful. The continued surge in the American stock market plays no small part insustaining the levels of consumer spending seen there.

This is possible because the American commoner does invest in stock markets sizeably, both on his own and much through mutual funds. But in India, stock trading is restricted to only high networth individuals, stock brokers and professional traders. However, the recent trend in reduced interest rates on fixed instruments is causing serious worries for the common man. Forced to look for better returns, he is now torn between the mutual fund route and investment on his own. Everyone has been shocked at the poor, if callous level of fund management expertise in the past. The fund manager has become a subject of suspicion rather than trust. This picture will take time to change.

With the drop in interest rates, bank deposits are not growing as robustly as earlier. Greviously hurt, the common man is now looking tentatively at entering the stock markets.

In the meanwhile, the market complexion has changed so much that today it is not easy for anindividual to play stocks, without serious risks. The MF industry is growing, but will take more time before becoming a formidable factor in deciding trends in the investment and stock markets. Investors need to satisfy themselves that the growth trend will be sustained. Then alone can they sleep peacefully after buying in stocks at the current prices.

Am I exaggerating? Not in the least. Look at the way Bhel and ABB have regained most of their losses after their poor performance. Prices have surged more on speculation than on reasonable discounting of what these companies can look forward to in terms of business in the changed environment.

There has been overdiscounting, as speculators cannot wait to see results. Despite the good growth in demand in several sectors, the government is the worry. It will not be able to realise the Rs.10,000 crore it hoped to garner from PSU downloading. Again, the latest prices declared for kharif crops show that the government is not a convert to sound economicprinciples. Such a government poses a threat to both industrial growth and investors. Sure, the tax base is widening, but where is any sign that the government has the political will to undertake the second wave of reforms? For that alone can sustain growth.