Most evidence from research on financial markets suggests a lack of correlation between economic growth and equity returns. Indian markets supported this hypothesis well in calendar 2012. While most emerging economic data pointed to a continuous deterioration, equity markets continued to rise. This was accentuated after September 2012 when the government began to demonstrate political will and re-initiated the stalled reforms process. In December 2011, most people would have forecast a negative return for the coming year. Instead, we are looking at 25% gains for CY12, driven by FII inflows, even as domestic investors have been cashing out. Corporate profitability through 2012 has been substantially low with a stubborn, high interest rate regime. But the markets seem to ignoring all the facts. Stock markets tend to discount the future and FII behaviour seems to be reflecting that.