It is time again to obsess with the Sensex. Last May, we discovered that global interest matters. As FIIs took money out of emerging markets like ours, with a rise in rates, we panicked. Then the fundamental India story came back and markets recovered.

Now, the global story is playing up again and there are jitters about a possible US recession and repercussions for India. There are times when fundamental and technical factors work at serious cross purposes and give us volatile and jumpy markets. We are going through one more phase of that kind. It does look like there is more to come. 

The fundamental story is fairly simple. The US has been nursing a large and ballooning deficit, which is not sustainable. In 2005, there was panic about the slowing job rates, but housing demand kept moving up. The worry about a hard landing for the US economy sounded pessimistic. In 2006, housing demand slowed down, interest rate hikes were paused, and everyone spoke about the 'Goldilocks' economy.

The US will slow down perhaps, but not with a thud. After former Federal Reserve chairman Alan Greenspan's comment that recession could be a reality in 2007, the worry has returned. There are several threads to the anticipated US slowdown, but we will focus on one aspect. Most economies of the world sell to the US, and a slowdown in US consumption will mean a slowdown for most of them.

Now for the technical side. Markets will move up or down depending on how much money operators have, and how they deal with their gains and losses. In the early 2000s, low interest rate regimes of developed nations like the US and Japan created a lot of liquidity.

Global investors who had access to cheap money drove the markets up. As interest rates and exchange rates adjust to the new economic realities - the yen appreciation is but one of them - these positions will unwind. Technical unwind is always sudden and quick. It always spills over across markets, and takes the large and the small with it.

In the middle of this storm is India, with its own story. Fundamentally, India could not be better poised. It is one of the few emerging economies with a large domestic consumption, and lower economic dependence on the US and China. On the technical side, however, not only global flows, but a large amount of domestic technical flows also move in and out of it.

The market is dominated by FIIs on the one hand, and local operators on the other. After the May 2006 crash, many local operators were left with no money to come back. The rout last week would have killed many of the new ones and those who came back. While the FIIs are worrying about global factors, the locals are licking their wounds. The market is, therefore, technically weak.

When we look at markets, we tend to analyse what is happening on the basis of past experience. We adapt as we go along. Just as we searched for scamsters when the index began to move up three years ago, we will assume that market volatilities will settle down soon. We would like India's fundamentals to surface.

But the markets will not move unless real money comes in, which is technical. Clearly, the uni-polar domination of the world economy by the US is set to unwind, and my guess is that it is not likely to be a simple, orchestrated affair. This is a story we have not seen before, so we cannot predict outcomes.

As always, every crisis rewards patient investors with the opportunity to pick what they wanted, after deliberate choice, without being rushed. Global or local, fundamental or technical, there are always businesses that will survive over time. There are businesses that are driven by local demand, but are run at global standards. Downturns like the present one are a time to pick those that will last.