Thus far in 2017-18, FIIs and MFs have invested Rs 198.91 billion and Rs 1,119.49 billion in the Indian equity markets. Of this, around Rs 152.46 billion has come in January alone.
With a gain of 6.7 per cent in January, the S&P BSE Sensex has seen its best run in one month prior to the Union Budget presentation in over a decade.
The next best performance was in February 2006, when the index had gained around 5 per cent.
The recent rally, analysts say, comes on the back of a liquidity super-cycle and buoyant global equity markets, and not just on Budget expectations.
“The up move is not happening in anticipation of the Budget.
"The importance of this event from the point of view of the markets and the economy has come down over the years, as a lot of key steps are reforms are being undertaken outside the Budget.
"This is a genuine bull run that is backed by liquidity and positive sentiment across global equity markets,” says Jigar Shah, chief executive officer, Maybank Kim Eng Securities.
Thus far in 2017-18, foreign institutional investors (FIIs) and mutual funds have invested Rs 198.91 billion and Rs 1,119.49 billion in the Indian equity markets.
Of this, around Rs 152.46 billion has come in January alone.
The liquidity has pushed the indices - the S&P BSE Sensex and Nifty50 - higher by around 7 per cent each during this period.
Globally, India is among the top-performing markets with only the Karachi, Hang Seng, and Shanghai Composite performing better in the Asian region.
The road ahead
So, will the markets continue to gain ground after Budget presentation on February 1?
In the past 10 years (since February 2008), the markets have lost ground on five occasions in the month after the Budget was presented.
Analysts say one of the key decisions that will be monitored, besides the fiscal deficit target for 2018-19, will be the treatment of the long-term capital gains tax (LTCG) on equities.
However, most agree that the Budget will be less relevant after a few weeks as the focus will again shift to global events, macroeconomics, and earnings.
These factors, they believe, will play a key role in how FIIs and MFs allocate money across geographies and asset classes over the medium term.
“A move to tinker with the tax structure regarding equities will be taken negatively by the markets.
"The markets will also look at how interest rates move globally.
"There are indications the rate cutting cycle in India may be over. In case of a rate hike, there can be reallocation of flows,” adds Shah of Maybank Kim Eng Securities.
Currently, long term capital gains on sale of listed securities are exempt from taxes.
The proposal to bring back the tax, abolished in 2005, was mooted by the BSE.
“There is little possibility that Budget 2018 will deliver reasons for an upside to an already inflated equity market. Fiscal expansion could have created some excitement, but we expect the government to stay at 3.2 per cent of the GDP (gross domestic product) for 2018-19.
"We stay cautious on Indian equities. Our December 2018 S&P BSE Sensex target is 32,000,” says Sanjay Mookim, India equity strategist, Bank of America-Merrill Lynch.
Some of the key variables, according to Surendra Goyal, managing director, head of India research at Citi, which will affect market sentiment through 2018 include GST collections, oil prices, corporate earnings and domestic flows.
His December 2018 S&P BSE Sensex target is 36,900, which is around 1.4 per cent higher than the current level.
Photograph: Danish Siddiqui/Reuters