Foreign institutional investors seem to be showing renewed faith in the Indian markets, which could lead to a considerable increase in net inflows in the next couple of months.
Fundmen are viewing favourably developments on the monsoon front and the resolve of Prime Minister Atal Bihari Vajpayee to improve relations with Pakistan.
Another reason for sanguinity is that despite several disappointments in the recent past, FIIs have not reduced their local exposure drastically.
And with the Indian economy not doing badly, the expectation of returns on equity increasing is compelling second looks.
A majority of the 91 global emerging market funds are as much as 2-3 times overweight (as prescribed by Morgan Stanley Capital International) on India.
Funds such as Capital International Emerging Market Fund, Emerging Markets Growth Fund, Emerging Markets Trust and Vontobel Fund Emerging Markets Equity hold more than 11 per cent of their assets in Indian equities.
In an interview with Business Standard, Brad Durhum, managing director of US based Emerging Portfolio Fund Research (EPFR), said: "Dedicated emerging market fund managers have a long-standing overweight (on India), currently at 6.5 per cent compared with the benchmark MSCI Emerging Markets Fund index weighting of 4.9 per cent. As many as 68 of the 91 global emerging market equity funds are overweight on India and it is being maintained in spite of several recent disappointments."
These include lower-than-expected earnings at some leading software and information technology firms; the introduction of the new value-added tax regime, and the government's backtracking on structural reform promises (reduction of fuel subsidies and progress with privatisation among others).
Durhum says there are a few factors that prevent foreign fund managers from dramatically reducing their local exposure.
They are, the economy's expected growth rate for 2003 is above the average for the region at 6 per cent, and India's success in attracting outsourcing from developed markets.
Besides, local equities have not really outperformed since 1999 and may be due for a rally if the government were to show itself to be a little more supportive of structural reform, he said.
"I understand that upcoming elections will probably put reforms and privatisation into a holding pattern."
"India's valuations (price/earnings of about 12 times in 2002 and about 10 times on expected 2003 earnings) aren't that compelling relative to some other Asian markets (Korea is about 6.2 times and Thailand 8.4 times 2003 expected earnings), but the current valuation looks good on a historical basis and a lot better than it did in 1999 and 2000 when India's company valuations reached stratospheric levels (especially Infosys and Satyam)," Durhum added.