In a sudden shift of strategy, foreign institutional investors are eyeing India as a strong defensive bet and positioning their investments to hedge against high-risk markets in Asia like South Korea and Taiwan.

Investors battered in Chinese secondary markets are increasingly preferring India as a defensive bet.

Having registered a marginal gain as against huge losses suffered by major Asian markets in 2002, Indian stock markets have secured the tag of being the best defensive bet.

While the sensex gained 2 per cent during 2002, South Korea's KOSPI declined 16.22 per cent, the Taiwan Composite fell 24 per cent, the Singapore Straits Times Index lost 25 per cent, and China's SSE Composite declined 15.74 per cent.

FIIs, who have invested aggressively in the Korean market over the past couple of years, are realising the honeymoon may be over if the global economic situation does not improve.

The Korean and Taiwanese economies are export driven, and countries with high export income are expected to deliver lower rates of return owing to the weakening dollar.

"India has been able to provide stability to the local currency, which has helped in maintaining export competitiveness as well as confidence among foreign investors, including non-resident Indians," Jignesh Shah, strategist, ASK Raymond James Investment Management, said.

Both India and China are considered to be defensive markets since their economies are domestic consumption driven rather than export driven. The two markets were able to beat the widespread global economic recession because of their sheer size, Shah added.

The South Korean equity market is being eyed with caution because North Korea's nuclear threat has created a panic.

The South Korean stock market fell more than 13 per cent in December 2002 and foreign investment into the country was down 64 per cent during the last quarter of 2002 compared to the same period in 2001.

In contrast, the Indian market is poised for growth. The market has witnessed rock bottom prices and price-earning ratios are more than returns, leaving scope for appreciation in the secondary market.

"Liquidity in large-cap stocks is set to improve, and the higher the liquidity in a stock, larger the FII participation," S Naganath, chief investment officer and joint president, DSP Merrill Lynch Mutual Fund, said.

The optimism for 2003 stems from good liquidity, below-average valuations, better corporate balance sheets, a strong rupee, a virtual end to the Unit Trust of India's selling pressure, lesser room for stock market irregularities, the potential of increased household borrowings, and prospects of a better monsoon.