On September 16, the London Interbank Offered Rate, the price at which banks lend to each other climbed to 5.03%. The global financial crisis had reached a flashpoint with the collapse of the likes of Lehman Brothers and AIG just managing to save its signboard. The LIBOR basically told the world that global money markets where about $3 trillion was transacted daily had frozen.

A month later on October 17, the LIBOR has eased to 1.67%. Analysts agree that the world is in down turn but the engines of world financial markets have sputtered back to life. But the Indian market bellwether index, the Bombay Stock Exchange Sensex, tanked 606 points on Friday to close at 9,975.35, a two-year low. The market is probably panicking too much.

The year will go down as the year when there will be biggest exit of portfolio investors from the Indian markets. Yet at current rates, the aggregate forex reserves of RBI at the end of this year will still be above $ 200 billion (see chart). This was touted as the most significant challenge that Indian balance of payments statistic would face.

Just sample the clutch of indicators for India, when the markets closed on Friday. 1) The call rates have eased as the liquidity squeeze has been sorted out by the RBI?s combined cut of 250 bps in CRR, releasing Rs 100,000 crore.

2) The squeeze on the money market mutual funds that operate on the short end of the markets have also eased. Why? Under the Special 14-day fixed rate window for banks opened by the RBI to lend to mutual funds, only Rs 7,005 crore of the total Rs 20,000 crore have been used up.

3) The rates on domestic corporate papers of both the short and the short varieties have improved to 12.39% and 11.34%, respectively. The latest weekly statistical supplement of the RBI showed the band had worsened to 10.25-14.25% at the end of September.

4) The very significant global Investment Grade credit derivate index?that tracks the performance of the various segments of credit derivatives has eased to 195 on Friday from 207 a month ago. This shows that derivatives built on sub-prime debts have largely been eased out from the system.

5) From within India, inflation has also fallen to 11.44% for week ended Oct 4.

There were only a few negatives:

1) The yields on government bonds have slipped which means their prices have risen. This is because in the current climate the demand for the safety of debt papers is far more than equities.

2) The rupee too is lower at 48.88 to a dollar which means imports will be costlier. The foreign exchange reserves have slipped to $ 274 billion.

Not surprisingly as the markets dipped, the price to equity ratio also decreased to 13.4 from 14.4 which means the valuations of stocks have become ridiculously low. But as Yes Bank director Tarun Khanna said, Two-thirds of the Indian market was driven by foreign money. The rapid pullout by them explains the rapid fall in India. FIIs net sold shares over $11 billion in this year so far. The total FII outflows from the equities market for the week were over $900 million.?

?Fundamentals of the economy are strong. Markets can recover only if the sentiment improves. However, that has to start from the US,? Bonanza Capital research chief PK Agarwal said. By all indications the USA and European markets are stabilising but at lower levels. It remains to be seen if the Indian markets respond to the changes also.