After the victory of Bharatiya Janata Party (BJP) in three key states, foreign investors have turned bullish on the outlook for Indian stocks, seeing further gains. The performance of BJP has helped drive the market to a $4 trillion valuation.

Overseas funds held 31,549 more long index futures contracts than short contracts as of Thursday, turning to a net bullish position a day earlier for the first time since September, according to exchange data compiled by Bloomberg.

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This week, the stocks extended gains to fresh record highs. This is due to the state election results are seen diminishing risk of political upheaval in national polls next year.

The NSE Nifty 50 Index is up 16% so far this year, outperforming most Asian peers as investors bet on strong earnings growth and improvement in domestic consumption as well as the likelihood of Narendra Modi winning a third term.

It is worth highlighting that the common futures trades by overseas investors target the Nifty 50 and Nifty Bank Index, among others.

While now net long index futures, global funds also have turned buyers of Indian stocks in the cash market again, purchasing over $4 billion from the end of October through December 5 on a net basis.

Historically backtested data show that in the last decade, whenever the net index futures positioning of foreign investors has turned positive, the Nifty 50 has risen 2.6 per cent on average over the next 30 days, 79% of the time.

At the recently concluded state elections, BJP retained power in Madhya Pradesh and took Rajasthan and Chhattisgarh.

In Madhya Pradesh, the BJP managed to bag 163 seats out of 230, in Rajasthan it got 115 seats out of 199 while in Chhattisgarh, the saffron party got 54 out of 90 seats.

Speaking on the results, PM Modi in a post of X said, “We bow to the Janta Janardan. The results in Chhattisgarh, Madhya Pradesh and Rajasthan indicate that the people of India are firmly with politics of good governance and development, which the BJP stands for. I thank the people of these states for their unwavering support and assure them that we will keep working tirelessly for their well-being. A special thanks to the hardworking Party Karyakartas. Each of them is exemplary! They have worked tirelessly and highlighted our development agenda among the people.”

Recently, the Finance Minister Nirmala Sitharaman at the winter session of the Parliament said India was not only the fastest-growing economy in the world but also it had the highest growth rate in the second quarter of the current financial year globally.

Indian economy had grown from the tenth largest in 2014 to the fifth largest economy in 2023.

Announcing its Monetary Policy Committee (MPC) deliberation, the RBI Governor Shaktikanta Das projected the real GDP growth for 2023-24 at 7 per cent while the CPI inflation at 5.4 per cent.