The moot point from the point of view of domestic investors is whether or not there is a fundamental shift in perception over the Indian economy. That does not seem to be the case. Profit-taking is the prime mover of the FII outflow. The FIIs were big contrarian buyers during the height of the political uncertainty and considering that the market indices have risen by 50 per cent since then a little profit taking should not be considered strange.

Few of the reasons for FII selling have anything to do with the long-term fundamentals of the economy. Software companies are reporting slower growth due to postponement of software development until next year by global companies, but this should pick up next year again. Similarly some pharma companies have hit a bad patch which is out of line with their longer term fundamentals. For the moment their portfolio is being re-shuffled in favour of cyclicals.

In the wake of FII selling the market's interest is also shifting away from these sectors and into cyclical stocks. And the earnings growth being shown by that segment of companies bears out the demand for sectors such as cement, automobiles and petrochemicals.