Foreign institutional investors (FIIs) have poured over Rs 22,000 crore in March so far propelling the Indian market to a 6-month high. In February, FIIs bought assets worth Rs 15,328 crore.
Rising hopes of a stable government at the Centre after the Indian Air Force air strike in Pakistan in February lifted sentiment.
"BJP's perceived toughness on national security appears to have bought it an additional 30-40 seats in the general elections, compared to opinion polls conducted in January 2019," Nomura said.
That is why most analysts said it is a pre-election rally led by FIIs who were on the sidelines earlier given election uncertainties.
Historically, Nifty has outperformed the broader regional index (MXAPJ) ahead of five out of the past six general elections since 1996.
Markets have generally performed well heading into the past general elections because previous governments were mostly coalitions and the markets rallied on hopes of a more stable government.
BSE Sensex climbed 8.5 percent or 3,011 points and Nifty50 climbed 8.75 percent or 928 points in the last one month. The bull run underscores the past pattern.
The real heroes, though, are midcaps and smallcaps, which were badly beaten down since the beginning of 2018.
Nifty Midcap index surged over 10 percent and Smallcap index jumped 15 percent in last one month. However, before this rally, both indices had corrected 26 percent and 39 percent, respectively, from their peak in January 2018.
FII flow in last one month was largest among the seven emerging Asian markets that provide exchange data on FII net buying, a Goldman Sachs report said.
One of the prominent reasons for strong FII inflow is that many analysts feel India is under-owned market.
"We think foreign fund outflows have troughed. They totalled $3.9 billion in the last 12 months and current levels are below those during previous bear markets. HSBC proprietary analysis of foreign fund holdings shows that India is among the most under-owned market in the region and this may support a rotation into Indian equities," HSBC said.
During February 2018-January 2019, FIIs sold net Rs 82,652 crore worth of shares. They were net sellers in nine out of 12 months. On the contrary, DIIs remained net buyers before they turned net sellers in February and March 2019. They bought more than Rs 1.047 lakh crore worth of equities in the last 12 months.
Looking at data for March in the last 10 years, it suggests that FIIs have been net buyers in March every year and flow in every March was more than Rs 10,000 crore in six out of last 10 years.
Other reasons for such high FII inflow were fear of a slowdown in the US and China, and also likely continuity in stimulus by the US, China and Europe to boost growth, experts said, adding the bull market in India is underway given favourable macros and improving micros.
"In our view, all the indicators—the inflation outlook, GDP growth rates, bond yields, crude oil prices, valuations and earnings—paint a positive picture. However, except for the uncertainty around the election, we think the next bull market would already be underway," HSBC said.
"For an optimum risk-reward, we think investors should be aware of possible market volatility in the short term but be positioned for a gradual increase in risk-on sentiment in the long term," it added.
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