Over the past two-three years, did you at any time: a: Borrow to buy a house; b: Borrow to subscribe to initial public offers or to buy shares in the secondary market; c: Begin investing in commodities contracts; d: Hoard gold. If you answer yes to any one of the four choices --- there would be many you nodding vigorously: yes, yes, yes, and yes --- you obviously made hay when interest rates had hit rock bottom, the sun shone generously on the an emerging Indian middle class, and the long term was a bright, albeit pretty indefinable, horizon. Not much has changed: The great Indian middle class continues to burgeon, and the long term isn't gloomy by any yardstick. There's one big difference, however: "Interest rate normalization" in economist-speak --- which translates into higher interest payouts for you and me --- is the buzzword not just with US Fed but at central banks globally, ostensibly to snuff out a threat of inflation. Result? Money isn't as easy as it was when you were on your loan binge, and some crazy guys --- not just in the US but a few at home too --- are suddenly screaming "bubble" from the rooftops. Their argument is that as interest rates rise, money won't have the legs any more to chase assets like stocks, real estate, and metals (precious, like gold, and the other variety like zinc, copper, steel, which actually aren't exactly un-precious at today's prices). What isn't helping matters is the nose-dive prices of commodities and equities slipped into (magnified in emerging markets, and perhaps exaggerated in India).

Is the long term still rosy, you shudder? If liquidity is indeed drying up, the "long-term growth stories," don't sound so romantic any more, and the "sweet spots" appear to have replaced by black holes. As the Indian benchmark index, the Sensex, crashed (you hate the word correction) 18 per cent from its peak last fortnight, you began to doubt whether the country can emerge as the world's second largest economy (and China the largest), as some wide-eyed analysts had once ordained. The infrastructure build-up fairy tale that was fuelling the rise in real estate prices and commodities too suddenly sounds suspect. The booming hedge funds, which till recently were lording it on Dalal Street, may not be the same again, what with their lifeline of easy money jammed. If the bubble theory is true, if asset prices have indeed been pushed up to unsustainable levels by liquidity-crazed investors waltzing from asset to asset, am I up the creek, you wonder. After all, if the bubbles begin to burst one after the other --- equities, gold, metals, hedge funds, and property --- you're staring down the barrel at a full-blown recession, a global one for good measure. Your loans weigh like a family of albatrosses around your neck; the sods who borrowed to fund their speculative splurge would probably be even sicker. And you want to throttle the next guy who mutters: "The long-term trend is bullish."

Have things turned bad? That bad? So suddenly? Well, yes, no, maybe. No we aren't hedging, but just attempting to tell you that: a: Yes there are a few bubbles perilously close to bursting point. b: No, they aren't across the board. Read on.

The Bull's Subdued But Still Snorting

Rising rates globally, falling commodities prices and shockwaves in emerging markets brought the Indian indices down by over 20 per cent last fortnight. Hopefully, you were buying when most punters were going to pieces.

By Anand Adhikari

Gautam Singhania Chairman & MD, Raymond "A huge middle class and rising income levels augur well for our economy."

Uday Kotak Exec. Vice-chairman & MD, Kotak Mahindra Bank "Just as we like them (the FIIs) to put money in, we should be prepared that some of it can go out."

A man arrived in a village and announced he would buy monkeys for Rs 10. He bought thousands and as supply started to diminish he doubled the price. The villagers started catching monkeys again. Soon it was an effort to even see a monkey let alone catch it. By which time the man announced he would buy monkeys at Rs 50! However, since he had to go to the city his assistant would now buy on his behalf. The assistant told the villagers: "Look at all these monkeys in the big cage that the man has collected. I will sell them to you for Rs 35 and when the man comes back you can sell it to him for 50." The villagers queued up with all their savings. After that the man and his assistant were never seen again. Only the monkeys-and not just the ones in the cage-were left.

Last fortnight this was one of the more prevalent yarns doing the rounds of trading shops in and around Dalal Street. The "man" is none other than the foreign institutional investor (FII), and the villagers are of course humble retail investors. The "monkeys" are Indian stocks, but you can safely interpret that the biggest monkeys are the small investors. It's a harsh tale whose origins could probably be traced back to a bitter punter who lost his shirt when the benchmark BSE Sensex crashed 22 per cent in just 10 days. The FIIs took out roughly $1.5 billion (Rs 6,750 crore) in those 10 eventful days, after the US Fed hiked interest rates for the 16th consecutive quarter, by 0.25 per cent to 5 per cent. For traders deluded by the $4.1 billion (Rs 18,476 crore) FII inflows into Indian equities in the first four months of 2006, the correction came as a painful bolt from the not-so-distant blue.

It shouldn't have. As Uday Kotak, Vice Chairman & Managing Director, Kotak Mahindra Group, says: "Just as we like them (the FIIs) to put money in, we should be prepared that some of it can go out." If you look at the correction as just a technical phenomenon-and not as one which resulted in a few traders falling off buildings-it was welcome and overdue. The meltdown in no way signals the end of the rally. "A huge middle class and rising income levels augur well for our economy," chips in Gautam Singhania, CMD, Raymond Ltd.

What the free fall did do was to reveal the dark side of excess. This is reflected in the Sensex forward p-e (price-earnings) ratio, which, at over 14 at its peak, made India the most expensive amongst emerging markets. As Stephen Roach, Chief Economist, Morgan Stanley, says: "India has a great fundamental story. But I am afraid the markets got ahead of themselves in discounting this story. The excesses should come out of many asset markets. Purging the excesses of the Indian equity market will be a part of that process." Translated that could well mean an ebb in multi-billion FII inflows. Those salted away domestic rupees could, in the long run, provide more stability than sizzling greenbacks that move out faster than they come in.