New highs 2008 and 2013 what was there and whats here

Something strange is happening in the Indian stock markets these days. The markets are flirting with new highs, close to the levels seen in 2008. Unfortunately, there is nothing more to the nostalgia. In 2008, the gain in the markets was supported by high growth in the Indian economy. At an enviable growth rate of around 9%, the economic growth rate was around all time high. India then had a strong claim to become Asian power house and seemed like a safe bet for an investment. Coming back to the present, disconnect between the Indian economy and Sensex could not be starker. The GDP growth rate is crawling at around 5%. Even as there is hardly any optimism about the future prospects of the economy; the markets are touching new highs. Ironically, the driving force behind the rally is also one of the key concerns in the Indian economy. The weakness in the domestic currency and hence the benefits accruing to Indian exporters is a key factor that has pulled foreign money t o the stock markets. This is obvious from the fact that stocks of the companies whose business is linked to Indian economy is languishing in the red while stocks in the sectors such as IT and pharma are finding huge favour. 

However, the rally that is unlikely to last long. The first factor that will have an immediate impact will be Fed tapering. Indian economy is already out of favour as far as macroeconomic environment is concerned. There is hardly any internal catalyst with regards to reforms. Hence, it is just a matter of time when Sensex will start reflecting the ground realities. As such, the investors should not get carried away by the current trends and invest only in the stocks with robust fundamentals and attractive valuations.