Liquidity-driven rally

Lack of earnings revival will test investors' faith

The most striking change that has happened in the equity markets in the past decade is the coming of age of individual investors. They have kept faith even as returns have been subdued. The Sensex and Nifty have been making new highs, but the 10-year compounded return at 9 per cent a year has not compensated for equity risk, given that real returns have been 2-3 per cent annually. But that has not bothered foreign and domestic investors, and valuations have only climbed to new highs this year.

While foreign investors have liked the fact that India is among the