Does it make sense to invest in Indian equities in the medium term?

On Jan. 2nd, 2013 the Bombay Stock Exchange index, the SENSEX started the year on a falsely optimistic note at 19714.24. On Apr. 1st, 2013 It began the second quarter a lot less optimistically closing at 18864.75 (down 4% so far). Live Mint today published a possible explanation for this malaise citing falling car sales, air passenger traffic numbers and disappointing rise in HSBC's Indian PMI numbers. As the article points out, all this negativity comes at a time of double digit inflation and massive current account deficits in India.

This begs the question, does it really make sense to invest in Indian equities in the short to medium term? This is where RBI's Liberalised Remittance scheme allows Indian residents to diversify their investment exposure by allowing investment up to US$ 200,000 each calendar year in overseas investment instruments. Given today's propensity among Indian residents to send children overseas for education or settlement, it makes complete sense to set up a trust or other investment structures in tax free jurisdictions overseas so that investors can take advantage of tax free wealth accumulation.