The second issue fears the direction and pace of interest rate cuts and monetary policy easing.

Various market observers had penciled in 150 basis points of interest rate cuts by the Reserve Bank of India in the calendar year 2012, and a full pass-through of these cuts by the banking system, and as a result were pretty optimistic on both the market and the general economic outlook.

Though this may no longer be possible, several of the more smart economic commentators now believe that rate cuts will not be more than 50 to 75 basis points and even these will not be fully passed on by the banking system to borrowers. As this theory, that the monetary reduction cycle may be more restricted, turns out to be predictable wisdom, markets may be quicker to the shortcoming. If borrowing costs and liquidity do not get better considerably, many of the stressed segments and companies will remain in trouble and economic growth may not get the push that the bulls are expecting. The government bonds have by now risen to 8.6 percent, showing the pressure in the system.