Internet stocks in the US may have taken a tumble after disappointing performances by Yahoo and market darling Google, but India plus the Internet seems to be a heady combination.

The Rediff.com ADR continues to dazzle Wall Street, reaching a price of over $22 on the back of good third-quarter results, which showed a net income of $1.23 per ADS against a loss in the same quarter in the previous year. At current prices, Rediff's market cap comes to around $575 million, or over Rs 2500 crore. That puts Rediff's market cap near old stalwarts like MphasiS BFL, Moser-Baer, Hughes Software, Apollo Hospitals, Divi's Lab, Titan and Marico, to name a few.

Other Indian Internet businesses like the match-maker Shaadi.com are also making profits, while a Silicon Valley venture capital fund has recently put money in Naukri.com. Recruitment site Monster.com's Indian operations too are profitable, thanks to its resume database business. Nevertheless, it's the India tag that carries the premium.

If Google is left out of the computation, the USA Today e-consumer sub-index lost 3 per cent last year. Rediff's gain last year was over 100 per cent.

Quarterly results

Now that most of the third-quarter corporate results are out, it's pretty clear that there is a slowdown in earnings growth. The capitalmarket.com site shows that if we take the aggregate results of 2397 companies, growth in net sales in the December quarter has been 16.3 per cent compared with the same quarter in financial year 2005. Net profit growth has been a mere 6.6 per cent. The current bout of volatility in the market is a result of the realisation that, while the market has run up so much, earnings growth is beginning to run out of steam.Nevertheless, earnings growth in many companies continues to be above the price-earnings ratio. Many front-line companies too are part of that list. Siemens, Sesa Goa, Cipla, Bharti Tele-Ventures, ABB, Sterlite and L&T are some of them. Simply put, high valuations can be justified in such cases.

Many of these are engineering companies, testimony to the strength of the boom in capital expenditure. Also, with the rabi crop expected to be a bumper one, FMCG companies should also continue to do well.

Further, as the slew of multi-million dollar outsourcing deals show, IT continues to be a secular growth story. And if the government does something in the Budget to stop the bleeding in the oil companies, they too should perform better. One bonus in the last quarter has been lower raw material costs, which has led to margin expansion for many engineering and auto companies. In short, while a slowdown has certainly occurred, there are still many sectors and firms that will continue to show growth that justifies their premium valuation.

Interest rates

Interest rates are headed north once again. After the RBI raised short-term rates, housing finance companies and banks have started revising their interest rates upwards. It's easy to see why that is happening. Credit growth so far this fiscal has been Rs 2,64,079 crore, while bank deposit growth has been Rs 2,48, 649 crore. In other words, banks have been lending more than they have been receiving as deposits. They have been able to do that by selling their investments, which have fallen by Rs 24,651 crore this fiscal. Now, there's no alternative to raising deposit rates. It?s unlikely that small interest rate increases will slow down demand for retail loans, especially for housing. But the higher rates will impact the smaller corporate borrowers.