Foreign funds are making a beeline for the Indian stock market. Close to 50 FIIs have registered with Sebi over the past three months.

The market lost over 1,200 points, or about 15%, after the election results came out. There was anxiety that foreign funds would pull out money on fears that the new government would not pursue reforms as aggressively as the previous Vajpayee government had done.

However, the new regime has been actively courting the foreign investors. Finance minister P Chidambaram has announced some pro-FII measures, including increasing the FII limit in the debt market to $1.5bn and simplifying the process of FII registration.

Removal of the long-term capital gains tax and introduction of a turnover tax were some of the demands made by FIIs when Mr Chidambaram met them in Mumbai after taking charge.

Also, Sebi has relaxed the FII investment limits in the derivative market, where foreign funds have become major players. The regulator is also expected to take a decision soon, on allowing hedge funds entry in the domestic market.

In the past year, FIIs have pumped in over $6bn in the domestic equity market and were one of the biggest drivers behind the massive bull run which started in June '03.

FIIs are now the second-largest block of investors in leading domestic companies, with a much higher share than the local financial institutions.

They hold about 13.9% of the market capitalisation of 394 BSE 500 companies worth $222bn.