India's upgrade by Moody's Investor Services should have one immediate fallout: foreign portfolio investors who haven't so far had India on their investment radars can now consider joining the fray.

This development, read along with Sebi's decision over the weekend to allow regulated foreign entities access to the Indian markets through the participatory notes route, could lead to enhanced portfolio inflows into the Indian markets over the medium term.

Several fund managers with foreign brokerage houses told Business Standard that foreign institutional investor inflows could cross 2003 levels as a number of pension and insurance funds can now enter the Indian markets in a big way. Most qualified institutional investors base their investment decisions on these ratings.

Says Ayaz Ebrahim, director and chief investment officer (equities) for the Asia-Pacific region (excluding Japan) of HSBC Asset Management (Hong Kong), "Compared to the developed economies, including Japan, valuations in the Indian markets are still attractive," adding: "The key drivers to investing in Asia (including India) will be unlocking shareholder value through value creation."

Countries such as India have reached a position where their fiscal situation is manageable and forex reserves are healthy, he said. This means there is no major worry about a bubble building up in the Asian region.

Meanwhile, the US-based EmergingPortfolio.com Fund Research - EPFR, a research firm that collates data on fund flows to the emerging markets - says in its latest report that in the first two weeks of 2004, an additional $1.32 billion was added to the investible corpus of global emerging market funds, with a healthy $789.7 million going into Asian (excluding Japan) equity funds.

Out of this amount, $273 million was placed with equity funds investing in the Chinese markets, while nearly $200 million of the new money flowed into India-dedicated funds.

"Emerging markets are highly cyclical and are regarded by portfolio investors as a leveraged play on global economic recovery, especially as monetary policy has eased and economies are enjoying domestically-driven growth throughout the emerging markets world," said Brad Durham, EPFR managing director, in the report.

Evidence of continuing global interest in India is available from the fact that in the first 22 days of 2004, five new FIIs have registered themselves with the Securities and Exchange Board of India, taking the total number of registered FIIs from 517 on December 31, 2003 to 522 on January 22.

Says a research head from a leading domestic broking firm: "The FIIs were one of the most significant players in the Indian equity markets in 2003 with net FII inflows at about $ 6.4 billion. We may see a similar kind of inflows this year."

Also, Sebi's move to permit only regulated entities to trade in the Indian markets through PNs is expected to make India a more attractive and safer destination even for funds, which may not either qualify for registration as FIIs or may not choose to register with the Indian regulators.

Till date, 95 per cent of the PN clients of leading FIIs have registered with Sebi.