Let's be honest: If I'd been driving, we'd still be trying to get out of Mumbai airport. The drivers there are borderline reckless when it comes to pushing into traffic. You have to be aggressive, and you have to be willing to go with the flow.

The same traits, it seems, characterize India's unprecedented rush into the stock market right now.

Get in on the chase
While the parade to open brokerage accounts in China is well documented, there hasn't been as much reported in the American press regarding Indian investors. Here are some of the juicy details I've picked up over the past few days.

Mutual fund assets under management increased 16% in May to a record $102 billion. That's a $14 billion increase in just one month! For a country that, according to Indian Internet portal Rediff.com (NASDAQ:REDF) CEO Ajit Balakrishnan, "was capital short for 2,000 and [therefore] saves capital very, very closely," this is a sea change.

The Indian market has been on tear over the past year, increasing nearly 50%. Stocks now trade for 29 times earnings, and there is not yet any mechanism in place to allow investors to short stocks (it could happen this summer). That means that anyone who wants to invest must go long.

Finally, even after all that money flowed into the stock market in May, it's been just five stocks that have pushed the Sensex to its 14% rise since April 1 and 3% rise since May 1, according to India's The Economic Times. That's right. Just five widely held stocks are responsible for the near-record highs the Indian market is hitting.

Put it all together, and I think there's some dumb money in this market that will pull out as soon as there are signs of a correction.

Who are you calling "dumb money"?
India's economic growth will not be without hiccups. Putting valuations aside, there are some real challenges that the country must face.

First, India is sorely lacking when it comes to infrastructure, particularly energy. The Economic Times estimates that it will take a $200 billion investment to meet the country's energy needs over just the next five years.

Next, several professional investors have said that real estate prices need to go undergo a painful correction. They've gotten at least 30% ahead of themselves.

Third, I've been told that India's celebrated business process outsourcing (BPO) industry won't be the long-term solution for economic growth. The country's top graduates don't find the jobs rewarding, turnover is high, and if the rupee continues to appreciate against the dollar, the outsourcing industry in India will lose its global advantage.

But the returns in the market have been great, and novice investors are willing to chase them.

The need for a bust
The difference between investor returns and stated returns in mutual funds has been well documented. Both Peter Lynch, as manager of the Fidelity Magellan fund, and, more recently, Morningstar, have found that individual investors have an uncanny knack for buying high and selling low.

India, however, has not seen a prolonged correction since its bull run began in 2003. Retail investors don't even seem to be talking about the possibility. Here's a sampling of recent headlines in The Economic Times:

  • "India spurs record $40 bn capital flows to S Asia"
  • "Economies on a roll, set to beat forecasts again"
  • "Hang in there, India's is a long-term story"

Monday's drop in the Chinese markets is relegated to the back page, and the lone bearish article specifically fingers the bond market.

When good stocks go bad
But as any long-term investor knows, there are cycles in the market. Back in the United States in 1999, it often seemed as though the Internet revolution could not be stopped. Just as five major Indian stocks have pushed the stock market to skyscraper levels, it was Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Dell (NASDAQ:DELL), and a few others that contributed to the Nasdaq 100's meteoric rise. Those companies also crashed hard.

And while Rediff.com doesn't even trade in India, its shares -- priced at 80 times earnings and 20 times sales -- seem optimistically priced despite its recent blowout quarter. That becomes particularly clear when you note that the $520 million company's main competitors in India when it comes to mail, messaging, and search are $38 billion Yahoo! (NASDAQ:YHOO) and $160 billion Google (NASDAQ:GOOG).

Profit from optimism
A correction is coming to India. And many of the country's new investors will be terrified when it occurs.

That said, the growth of an investor class here is happening quickly and is nothing less than crucial to the country's long-term growth. And if you're a U.S. investor who wants to profit from that trend, then take a look at the banks, such as ICICI (NYSE:IBN), that are selling these hugely popular mutual funds. That, after all, is the global megatrend you must own.

Tim Hanson is currently traveling with Motley Fool Global Gains advisor Bill Mann and analyst Paul Elliott to meet with companies in India, China, and Taiwan. To get their free updates and analysis in your inbox live from the field, send an email ASAP to Bill at BillTrip@Fool.com.

Tim does not own shares of any company mentioned. Microsoft, Intel, and Dell are Motley Fool Inside Value recommendations. Dell and Yahoo! are Stock Advisor picks. The Fool's disclosure policy heartily recommends dining at Trishna's in Mumbai.