But why are the foreign investors putting so much money into the Indian markets? The major reason is that the US dollar is depreciating against all major currencies, including the rupee.
The US economy is limping as its housing and automobile sectors -- two significant sectors that tell the tale of any economy's wellbeing -- display signs of weakness.
With the US economy slowing down, markets expect an interest rate cut there which would mean lesser bang for the dollar in the US. This leads to tons of dollars moving out of the US into other faster growing and more attractive markets, like India.
What could happen next?
Experts feel India would continue to remain one of the strongest bull markets in the world in the long run. Economies, like India, are now flush with liquidity -- or funds -- and this is driving up the markets. But how long will this continue? Well, no one knows for sure. If the US interest rise dramatically, funds will flow out of the Indian markets. A recession in the US economy could also lead to a crash in the Indian stockmarkets.
If the money flowing into the Indian stockmarket suddenly dries up, it will undoubtedly lead to a major crash. It can happen if the US interest rates keep going up or if there is a economic slowdown or if there is a scam lurking somewhere in the horizon, or even a major calamity, political upheaval or war.
But what are the chances of any of this happening? Frankly, no one knows and nobody can tell. But investors can always be prepared for the worst and take some basic corrective steps to avoid a personal disaster.
So what should you do? Read on...
Image: A stock trader watches his monitor in the dealing room at the brokerage firm Motilal Oswal Securities Limited in Mumbai. Photograph: Indranil Mukherjee/AFP/Getty Images
Also read: The Sensex story: From 1,000 to 17,000!
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