"Rising interest rates may have impact on SMEs; however, large players with access to global capital and debt are likely to see little impact" Tulsi R. Tanti CMD/Suzlon Energy

If stock markets are indeed a reflection of an economy's underlying fundamentals and the prospects for earnings growth of its corporations, then the current lull in Indian equities is pefectly justifiable. After all, not only is GDP growth expected to slow down, earnings in coming quarters are also expected to be muted. The big question, however, on Dalal Street is whether the indices have just paused for breath before they slip into the next phase of growth, or whether the four-year bull run in Indian stocks is well and truly over.

To be sure, there have been signs for some time now that the markets have lost their fizz. The broader market of mid-cap and small-cap shares has been languishing for almost a year now with negative returns. This may be a direct result of the reduced inflows from foreign institutional investors (FIIs), which are down by half in the last fiscal (over the previous year). And there don't appear to be too many signs of a revival in the near future.

"Till the signs of a (economic) slowdown disappear, markets will be volatile with sentiments tending to be bearish," says Nipun Mehta, CEO, Unitis Tower, a Mumbai-based wealth management advisor. "Rising interest rates have certainly given investors a better investment earning avenue than the equity market," he adds.

Equity analysts have already begun advising their clients to move out of sectors like banking, real estate & construction, capital-intensive industries, fast moving consumer goods, it services and other sectors that appear vulnerable to weak demand conditions. "We have seen price corrections earlier but now we are in the midst of a time correction," believes Naresh Kothari, Head (Institutional Equities), Edelweiss Securities.

The lacklustre activity in the secondary market is leaving its mark on the market for IPOs. Investor appetite has slackened, and two out of three recent offerings are trading below their offer price. The mutual fund industry too is beginning to feel the tremors of a high interest rate regime, with investors preferring to take home similar returns via a tried and tested avenue: bank deposits.