NEW DELHI - Just a few months ago, India was preening itself in the global spotlight. World leaders were queuing up to visit and President Obama famously declared the country was not simply emerging: It had "emerged."

Yet the elation the nation felt then was short-lived. Its pride buffeted on a daily basis by tales of collusion between politicians, bureaucrats and businessmen and reports of billions of dollars brazenly stolen, the mood among India's middle classes is distinctly crestfallen.

The country is experiencing what some people are calling "a reality check," or what business tycoon-turned-independent member of Parliament Rajeev Chandrasekhar sees as a "psychological crisis of confidence."

"In a sense we had gotten caught up with the rhetoric and hype about our imminent superpower-dom," the 46-year-old former telecom entrepreneur said in an interview in his office in the heart of Delhi. "People stopped looking at the system, which still needs a lot of work."

The fundamentals of the Indian success story have not changed: the tremendous power of the country's entrepreneurship
unleashed by economic liberalization two decades ago, the rapid growth and spending power of its 300 million-strong middle classes, the demographic dividend of its burgeoning young population. And although inflation has risen and foreign direct investment has fallen, the economy, which emerged almost unscathed by the global financial crisis, is still expected to grow at 9 percent this year.

For years, that success had fed what many business leaders, economists and social commentators now acknowledge was a sense of complacency, a feeling that economic growth and the pursuit of wealth would solve the nations' problems and deliver a bright new future. Today, there is a realization that it is not enough for the government to get out of the way of the private sector, that it actually needs to govern, too, to deliver services instead of merely lining its pockets.

David Fuller's view This is a familiar story for subscribers who have been monitoring the last few months in our ongoing coverage of India. Nevertheless today's article from The Washington Post is worth reading because it contains additional insights, mainly concerning outrage expressed by younger members of India's rapidly evolving middleclass.

Fullermoney has often said over the years that governance is everything. However if we ruled out every stock market where instances of corruption were commonplace, we would seldom own equities. It is the attitude towards corruption and the response to it that matters most in my assessment.

Fifteen or twenty years ago, when I would ask successful Indian's about corruption in their native country, most shrugged and said that it had long been institutionalised. Today, they are much more likely to regard it as unacceptable. I find that encouraging, even though I remain concerned about the recent spate of scandals in India and the government's inadequate public response. Unless this changes, I assume that the government will be punished at the next general election.

As a long-term bull of India, I am encouraged to see that its Sensex Index (monthly, weekly & daily) has steadied in recent weeks. It was certainly susceptible to a mean reversion correction last November, judging from its overextension relative to the 200-day MA, in addition to the proximity of the January 2008 peak. However India's correction has been larger than those seen by most other Asia Pacific markets because the recent corruption scandals further eroded confidence.

I think the Sensex needs to push back above initial resistance evident on the daily chart near 19,000, to provide clearer evidence that we saw an important low in February. The Bombay Banks Index (weekly & daily) is likely to remain a lead indicator. A close above 13,000 would also clear the January and February rally highs, providing further evidence of recovery scope. Conversely, closes beneath the February lows by these indices would open the door to additional weakness, further delaying the next recovery.