The list of known unknowns is a long one, given the macro-economic set-up. To be sure, share prices can rise even in such an environment if expectations are low. From a market perspective, we highlight some fairly obvious triggers:

>> The market is acutely sensitive to global outcomes, in fact, much more than to local outcomes, if return correlations are an indication. This could partly explain the staleness of local bad news or the lack of forcefully positive news to dampen correlations.

>> Then again, there is strong fundamental reason for India’s high correlation with global markets. Global outcomes affect India’s macro stability, given the twin deficit, even as the market is more concerned with the delta in the twin deficit rather than just the level.

>> There is a concurrent inflation impact (commodity prices) and, in turn, there are monetary policy implications. India’s BoP, and thus interest rates, is also tied to global outcomes, and, eventually, growth feeds from it.

>> Back home, the most crucial factors are the investment rate and fiscal consolidation. The former could change if the public sector presses the throttle. The private sector will likely remain reluctant to invest, given the low level of excess return, depressed asset turn and tepid growth outlook. Fiscal consolidation faces political challenges, as do overall reforms, and meaningful change is not a base-case outcome.

How does all this feed into the market outlook? M1 growth has put in a firm base, indicating stable revenue growth or even an acceleration. Improving liquidity has caused short-term rates to fall year on year. If the global risk appetite remains stable, rates will likely stay lower year on year.

The prospects of a faster fall in the current account deficit relative to the fiscal deficit are good for profit margins, albeit with an assumption that the investment rate does not collapse. The outlook on profits may be better at the margin, but conviction is still low. The best news on profits is that consensus expectations are low and hence scope for upside surprise is rising.

The sentiment remains fragile, if our proprietary sentiment indicator is a guide. Liquidity is better at the margin, as we noted, but still not firmly in favor of stocks. In the end, it is about what’s in the price. Arguably, valuations are attractive, notwithstanding the dispersion.