<b>T N Ninan:</b> Hope or hype?

Brazil got downgraded last week by Standard & Poor's - the fate that India escaped last summer. Russia has seen $40-50 billion flow out of the country in the first quarter of this year, on top of $60 billion in 2013. India, in contrast, has seen international money flood the country, and therefore the rupee climb to its highest level in eight months - even as the ruble and the real have fallen by 10 per cent and more. The stock market here is one of the better performers. Phasing out of monetary expansion by the US Fed (the "taper") is greeted by the market with a dismissive shrug - quite a change from last April, when the mere hint of a taper caused near-panic.

The difference between domestic and international opinion on India is too stark to be missed. Just as it is hard these days to meet an Indian businessman who sounds positive about either the present or the short-term to medium-term future, it is almost as hard to understand why international investors are willing to discount all the negatives about India that stare them in the face. Some macroeconomic indicators put India near the bottom of the rankings tables - as on industrial growth and inflation. Some other indicators have improved (so that Brazil now has a larger current account deficit), but there are hardly any variables (for example, the Budget balance) on which India shines in comparison with others.

Commodity markets may have had a bigger role to play than most people realise. Oil prices have been falling, for instance, though not by much. Coal prices have dropped more precipitously, by a half or more. Gold has fallen too, and aluminium prices are near their bottom. A lot of the things that were causing India stress - and proving to be a boon to commodity-exporting countries like Russia and Brazil - have disappeared as metals prices across the board have fallen by about 10 per cent. If China slows down further and demand flattens for a whole range of commodities, the price cuts (with the exception of iron ore) would be to the benefit of a commodity importer like India.

Or, perhaps the markets are rising on a wish and a prayer, and the change of the international investor's mood has to do largely with the hope of a new, firm government after the elections. Certainly, at the annual round of investor meets that the big broking houses held in Mumbai in the last few weeks, investors were interested above all else in what the pundits had to say on the general elections and their likely outcome. So it is possible that investors can't wait to see the back of the jaded Gandhi-Singh team and associated hangers-on, and are desperate to see a more energetic Narendra Modi in office. Other than this, there is no reason why India should become the flavour of the month. Its stock markets have done well, but some other emerging markets have done even better - Pakistan, for instance. Many middle-income countries have been growing faster than India, and most of them have better macroeconomic balances.

The problem with the "hope" surge is that it may have been built on hype. There is the risk that the Narendra Modi-led phalanx will not get quite as many seats in the Lok Sabha as the enthusiasts wish for. Even if their wishes materialise, the Modi campaign has been short on specifics, and the talk of the "Gujarat model" shown to have been overblown. So, should Mr Modi get to South Block, what are the decisions that he can or will take which will change the macroeconomic situation in double-quick time, or at least change the psychology of both business and markets? At some point, even the most bullish investors are going to need answers.