Now that we are drawing a close to 2005, it normally makes sense to sit back and reflect on the year gone by, the surprises and disappointments of fascinating 12 months.

In that sense 2005 was an important year with its share of milestones and firsts as it marked a year wherein we saw a coming of age and maturing of the Indian capital markets. Some of the major events and issues of the year as I saw are as follows.

2005 saw a continuation of the roaring bull market, which began around March 2003. The Indian capital markets have more than doubled over the past 30-odd months (with market capitalisation up even more), surprising even the staunchest bull.

FIIs have rediscovered our markets with a vengeance, pouring in over $10 billion in 2005 after pumping in over $8 billion in 2004.

Towards the end of 2005, even the domestic investor base began to join the party, as flows into mutual funds surged in the last six months of the current year.

A major development was the broadening of flows into the country as Japanese investors for the first time participated in the India story in a big way with more than $3billion of India-dedicated funds raised in Japan alone. To cater to this new-found love for India, Indian companies like Infosys [Get Quote] and ICICI [Get Quote] even had special carve-outs for Japan in their international fund raisings.

India also made the grade as far as business economics goes as the Indian operations of most international brokerages became either their most profitable in Asia or right up there ranking just after Korea.

2005 also marked the coming of age of corporate India in terms of gaining confidence and moving overseas. The number, breadth and size of overseas acquisitions were unprecedented.

The Tata group alone did deals (overseas acquisitions) of over a billion dollars in 2005.

Not so long ago corporate India as a whole would have done less than this figure. The new-found confidence among Indian CEOs is sure to lead to even to bigger deals going forward.

In the IT services/BPO, pharma, and select areas of advanced manufacturing, Indian companies have now reached global scales (at least in terms of market capitalisation) and have the currency and cash to buy whatever they wish. Given the buzz in Mumbai these days, the days of billion dollar deals are not that far away.

2005 also saw the beginning of big-ticket FDI flows into the country. The $1.5 billion purchase of a 10 per cent stake in Bharati by Vodafone comes to mind straightaway as does Merrill buying a 50 per cent stake in DSP for $500 million.

Indian assets have never been more valuable or in demand. The year also saw the announcement by POSCO of a $13 billion commitment on building a steel plant in Orissa (India's largest FDI commitment till date).

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Intel, Cisco, and Microsoft have announced multi-billion dollar investment plans in India within weeks of each other and many more such commitments are likely.

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Given the number of global MNCs conducting their global board meetings in the country, it is clear that India is finally and firmly on the map and they need to figure out an India strategy.

2005 saw corporate India having unprecedented access to capital. Any decent company had a choice of private equity, FCCBs, domestic IPOs, or could go for an ADR/GDR.

While the top 100 companies did not really exercise this choice, there was significant fund raising among the mid-sized companies, as they had access to capital on terms they could not have dreamed of even 18 month ago.

Companies were able to float offerings and complete them overnight. The long-term implications of this capital raising for heightened competition will be something we need to track in the years ahead.

Private equity came of age in 2005, with the best names in the business either setting up operation (Blackstone, Carlyle) or snooping around for deals from overseas (KKR, Apax, etc).

While no major deals were completed in 2005, highlighting the competition to put money to work, the days of buyouts are not far away. Today at least 6 PE firms in India can write individual cheques of over $100 million, adding a new and significant financing option for Indian companies.

The beginnings of a similar rush into venture capital look to be just around the corner. Many of the best venture capital names from the US have now begun visiting India regularly and in 2006 I would expect at least 3-4 of the big names to set up shop.

Another 4-5 new VC firms are on the road trying to raise funds currently. The entire financing infrastructure of venture capital and private equity is slowly coming into place.

Reforms in 2005 hit a roadblock as far as movement in critical areas of power, PSU divestment, and labour laws was concerned, but the markets did not really seem to care. Such was the love story with India that most investors refused to even contemplate what could puncture their long-term growth expectations.

2005 marked the third year in a row of GDP growth over 7 per cent, and even the most die-hard cynics began to wonder whether India had hit an inflection point. Could 7 per cent GDP growth be the new base?

If yes what are the implications of this higher growth for corporate earnings and domestic demand? One heard the rumblings of reform in agriculture as well, as the smart money began to move in this direction.

If agriculture reform were to be real even 8 per cent growth would not be out of reach. Along with this euphoria around long-term growth rates, we had to contend with the crumbling infrastructure of our large cities as Bangalore, Chennai, and, most famously, Mumbai witnessed a total collapse of infrastructure and lack of urban planning exposed by unprecedented rainfall.

For the first time in 2005 we actually had significant movements of the rupee in both directions, with many a corporate caught out as the initial expectations of a strengthening rupee reversed towards the year-end. Companies can no longer take the rupee for granted in terms of pace and direction of movement.

These are just some of the developments of 2005 that caught my eye, I am sure there are many more. Be that as it may, I think we are poised for a very interesting 2006. Clearly expectations are running very high, and India has to now deliver economic and earnings growth to justify its status as the most expensive market in Asia. Can the markets be up for a fourth year running?