The Bombay Stock Exchange's Sensitive Index - BSE Sensex has crossed one more milestone - 14000.

At 14000, the PE ratio of Sensex works out to be 23 times FY2007 earnings. The forward Price to Earnings ratio works out to be around 19 for FY2008.

It is trading to a premium over most emerging markets in the world. Historically these valuations look stretched. However strong liquidity flows are pushing the markets higher and higher.

The US economy is all poised for a slowdown. It is just a question of when. The weakening dollar makes the emerging markets attractive and investors are making big bets on strong growth potential of India. India being a consumer driven economy may not be severely affected by a US slowdown, but many export oriented sectors like IT may bear the brunt.

Many experts agree that valuations are rich and a correction (consolidation) may be good for the market. However the consensus is that the bullish trend may continue till Budget 2007.

In spite of the fact that the long term growth story of India remains intact, it is time a little caution is shown. The markets have reached a stage where any minor disappointment in earnings may see a flight of capital. As in most bull markets, the corrective fall would sharp.

the BSE index depends upon a whole lot of factors....... eg the indian stock market depends upon the foreign market too like of the US, china, australia, brazil.... etc..etc..