India ranks No 21 among emerging markets in Morgan Stanley capital international returns league this year.
Portfolio investments into the Indian equity markets are set to increase and brokers are expecting between $3 to $4 billion in net inflows in the next two months.
Brokers have based these estimates on discussions with the foreign institutional investor clients.
Srinivasan Vardarajan, managing director and head of markets in India, J P Morgan Chase Bank, said, "India is one of the fastest growing economies in the Asia Pacific region and I am sure that the dollar inflows will sustain."
He said that the figures being talked about in the markets look "reasonable".
Sources in FII brokerages said that there has been a sudden surge in foreign inflows in the last one month largely due to the rupee starting to appreciate against the dollar again.
A stronger rupee increases the dollar-denominated returns for foreign investors, "That is a very major driver," said Krishnamurthy Vijayan, chief executive officer of JM Mutual Fund.
The impact cost of investing in India is also lower than in the case of the other emerging markets.
On Wednesday the rupee posted a new seven-month closing high of Rs 44.45/46 to the dollar, surging 0.42 percent on the back of robust foreign capital and trade flows.
The rupee had last finished higher at 44.4100/4200 on April 29. The rupee has now appreciated 1.4 per cent in the five days since last Wednesday and has gained 2.6 per cent in calendar 2004.
A dealer at a FII brokerage said, "It is the end of the (calendar) year and most foreign institutions will be re-drawing their asset allocations. The indications are that the asset locations will be in favour of the Asian markets, including India." Brokerage sources added that India could expect to get a substantial chunk out of this allocation.
Foreign institutional investors have pumped in over $7.2 billion into the equity markets in the current calendar year.
In November 2004 alone, foreign institutional investor inflows have been close to $1.6 billion, the second highest in a month so far since April 2004 when the inflows were close to $1.7 billion.
