After huge net Jan-Feb outflows, this month has seen second-highest flows into India among Asian markets.

Foreign institutional investors (FIIs), bearish till recently on the Indian equity market, seem to be having a change of heart.

After selling Indian shares in the first two months of the current calendar year, the post-Budget period has seen them turn positive.

Till date this month, India has seen the second-highest FII inflow among leading Asian markets for which data is available, after Japan.

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Attractive valuations after the recent correction, impressive domestic growth potential, enhanced policy clarity and a robust long-term story seem to have turned the tide in India's favour, say market players.

Data available with the Securities and Exchange Board of India (Sebi) show that post-Budget, the direction of FII flows shifted. Foreign investors put in $304.6 million (Rs 1,370 crore) in March.

This comes after net outflows of more than $2 billion (Rs 9,000 crore) in January and February. Some of the biggest participants from abroad on the street - Deutsche, Morgan Stanley, Citi - have all sounded optimistic in their recent India strategy reports.

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"While we remain cognizant of the escalating tensions in the MENA (Middle East and North Africa) region, inflating oil prices and a potential worsening of the post-earthquake nuclear crisis in Japan, we believe that many of the India-specific macro risks (slowing industrial momentum, sharp rise in current account deficit, worries of escalated FII outflows and policy inertia) which drove the first bout of sharp underperformance since January are now either well discounted or abating," said Abhay Laijawala and Abhishek Saraf, strategists at Deutsche Bank, in a note to clients.

According to Bloomberg data, only Japan has been able to attract higher FII flows ($2.2 bn) in March when compared to India.

South Korea has registered a net outflow of $1.33 bn. Taiwan and Indonesia have seen $1.9 bn and $561 million, respectively, being taken out in March.

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The data for China was not available. "We see upsides on the market from here and a more aggressive portfolio/market mix, moderately better macro, slightly higher valuations and a largecap over midcap bias," said Aditya Narain of Citi, in a client note of March 18.

Citi has a December 2011 Sensex target of 22,000.

Similarly, on March 15, Ridham Desai of Morgan Stanley, said: "From a pure India perspective (not taking into account relative dynamics), Indian equities look attractive and seem to be priced and positioned for a lot of the negatives on the horizon."

With the exception of oil prices and a potential runaway increase in already elevated commodity prices, Deutsche Bank strategists expect to see a slow but certain recovering in the domestic macro situation heading into the second half of calendar year 2011.

"Our view is that investors must begin to position portfolios for a steady market recovery," they say.