As the Indian equity market is moving northwards, there is a growing concern among Foreign Institutional Investors (FIIs) about the markets ability to offer attractive valuation.

The Indian Equity market has come a long way since 1979 when the Sensex base was just 100. After crossing the 10,000 and the 11,000 barriers, the Sensex reached one more milestone on March 29, in the initial trading hours on BSE (Bombay Stock Exchange), when it surpassed the admired DOW Jones Industrial Average. It overtook the DOW Jones Industrial Average in a similar fashion in the year 1995 when the index was at the 3,800 plus levels. The two indices are apparently not comparable, but it gives a confidence of breaching a psychological barrier. Also, comparing the Sensex with the world's renowned market indicator is in itself a momentous achievement. This shows that the Indian equity market is still buoyant and aggressive. There are various reasons for the Indian capital market to be optimistic. Building on quality infrastructure, accelerating rural development, increased retail spending and talented manpower are some of the factors that boost investments in the equities. Obviously, the major market force in the current bull run is on the back of huge Foreign Institutional Investors (FIIs) investment inflows.

The last three years of bull run saw a rising inflow of investments from the FIIs to the Indian equities (Refer to Table 1 for Trends in FIIs Investments). In the last one year, the FII investment in the Indian equities increased by almost 30%. In the last financial year also, excluding a few months, FIIs were the net buyers (Refer to Table 2). In the first three months of the current calendar year (2006), they pumped in Rs. 17954 cr. Market has also moved in line with the flow of FII money. The number of registered FIIs is also showing an increasing trend (Refer to Table 3). In the financial year 2005-06, the number of registered FIIs increased from 686 to 882. This huge increase in the number of FIIs shows their huge interest in investing in the Indian capital market. The FIIs are investing in large-cap as well as mid-cap stocks irrespective of the sector; growth is the only inclination for their investments. The market has been rising for the last three years. But the most important question that still remains unanswered is how long this rally will sustain and how long FIIs will keep pumping the money in the Indian stock market.

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