e gravity of the recent corruption scandals (Commonwealth Games, G2 spectrum for mobile phones, housing scandal and insider trading investigations) in the last two months has deeply embarrassed and put pressure on the ruling coalition Government; especially as the opposition has paralysed Parliament, and four more state elections are due this year. Foreign investors are concerned by the political paralysis that may delay reforms and also by general governance standards in the country. So, how will foreign investor sentiment be affected? In the short term, India's image as a destination for investment has been dented. However, the damage to the image also depends on how well investors know India, and therefore the degree of comfort they have with India risk. FIIs who have invested in India for some time are aware that corruption and state bureaucracy have existed in the country for decades. Despite this, FIIs have been rewarded on their investments because the economy has grown strongly in the last decade and corporate earnings have grown and supported higher share prices. However, new or potential investors in India may put plans on hold as they worry about the worst scandals in a decade. They will, in time, realise that there is no systemic risk to the economy as the amounts concerned, although in many millions of dollars, are not material in context of the overall banking industry. The hope among foreign investors is that the furore caused by these scandals acts as a catalyst to "clean up" the way business is done in India in some sectors. The clean up would make India more attractive to foreign investors.

David Fuller's view Corruption and bureaucratic inefficiency remain India's biggest handicaps. Intellectual capital, a huge labour force and often first-rate corporate management remain India's leading strengths.

While India remains at least my co-favourite stock market for the long term, it is underperforming at the moment and I will have some medium-term concerns if the Sensex, Nifty and particularly the leading Banks Index fail to find support near their medium-term uptrends represented by the rising 200-day moving averages.