Apart from booting stock prices, the heavy FII dollar inflows had stabilised the rupee and arrested the fall in foreign exchange reserves since the beginning of the Indo-Pak conflict in the Kargil region. Propelling the bull charge, foreign funds bought a net of $183 million of equities in five trading days of last week. They invested $ 307 million from July 1-16 as compared to just $ 100.5 million in the whole of June. The inflows help the central bank in two ways - by buying dollars, it builds up its reserves and simultaneously releases liquidity to the money market to help push through a heavy government borrowing programme.

The FII buying spree came at theright time. Foreign exchange reserves of the country had, in fact, fallen by $ 628 million (around Rs 2,716 crore) to $ 32.904 billion during the Kashmir crisis, after hitting an all-time high of $33.532 billion on May 28. Bankers and forex dealers attributed the drop in reserves to central bank's intervention to support the rupee (when the rupee value falls, the RBI sells dollars to make the rupee strong).

The rupee had dipped to a low of 43.42 per dollar during the second week of July on dollar purchases by a few large corporates and institutions with liabilities falling due in July. However, bankers said strong dollar inflows -- through foreign institutional investment (FII) on stock markets -- following the withdrawal of infiltrators from Kashmir will help the Reserve Bank of India (RBI) rebuild its foreign exchange reserves. Dollar inflows have been heavy after last weekend's agreement between the two countries and dealers said the currency market had reverted to its pre-Kashmir conflict mode. Sincelast weekend's agreement between India and Pakistan allowing the infiltrators to withdraw, the rupee has been trading in firmer ranges and ended Friday at 43.23/24.

Apart from the rupee, the other major gainer of FII inflows was the stock market. The benchmark Bombay Stock Exchange Sensitive Index (Sensex) closed 6.3 per cent higher last week at 4,639.94 after hitting an all time high of 4,810.33 on Thursday. ``The 277-point gain last week was mainly due to buying by FIIs and local operators. Indian institutions tried to book profits at the higher levels,'' said a dealer with the National Stock Exchange.

FIIs bullish: Will the FII buying continue in the coming days? A cross-section of FIIs operating in India expressed a bullish view about India. ``Industrial growth in the first two months of this year has been 6.3 per cent, with several sectors showing concrete signs of recovery. The Kargil conflict has been resolved and the sentiment towards the currency is positive,'' said JP Morgan, a leading foreigninvestment bank.

``I think nothing has changed and we still favour a very positive trend. The flow of funds is very, very positive and India is in the focus of foreign funds and getting high weightage. While cyclical industries will continue to perform well, investors will focus on other sectors also,'' said an official of JM Morgan Stanley Securities.

Another positive factor is that political uncertainties have been relegated to the background. Even though polls are fast approaching, no FII seems to be worried about the poll outcome. Reason: It is now reasonably known that reforms will continue irrespective of the party coming to power at the centre. ``We are in a bull market and there has been persistent buying. The FII investment inflow will remain positive and there is lot of ability in the market. At this level, even a 5 per cent jump in the Sensex can take the market higher by around 250 points. I am seeing a 5000-level,'' said an analyst with HSBC Securities.

Even Yashwant Sinha who visited theBombay Stock Exchange last week was also impressed. ``The success of reforms is evidence to the FII confidence in our markets,'' Sinha said. SEBI chairman D R Mehta attributed the rise to the strong fundamentals of the economy.However, veteran brokers said the rally has so far touched only shares in the A and B1 groups, especially shares of software companies, fast moving consumer goods and cyclical industries. Thousands of shares in the B2 group are still languishing below the face value of Rs 10.