Yes. Indian markets should have been least affected in the global meltdown that we are witnessing. However, quite surprisingly Indian markets  fell more than the Western stock markets. Why?

Indian biggies like Tata, BIrla, Reliance took huge debts in dollars but denominated in Yen.
This yen denomination would continue to hurt their balance sheets for many quarters to come.

Almost all Hotel biggies took too much debt in Dollars again denominated in Yen. They have overlevergaed their earnings and hence their stocks got punished.

IT giants like Infosys, Wipro, TCS and Satyam were too dependent on US markets. With the collapse of Investments banks, these IT navaratnas top line will see huge decline. Going forward Strength in Rupee will compound their balance sheet woos.

The above factors were responsible for coupling of Indian markets.
What can Indian government do to decouple?

1) Help Tata’s, Birla’s etc with Dollars to clear their debts now. This will not only help these companies to be strong but will also help Indian government put their dollar reserves to good use, instead of seeing them plummet in value due to flood of dollars in the  global markets.

2) Help the Banks like ICICI with their subprime exposure just like US and European countries did.

3) Government should start spending in improving infrastructure, services. This will help create jobs and put life into our markets. We should put more efforts in energising our economy and our country.

Its time we start reducing subsidies and start spending money with greater returns on our investments.