FIIs, which pulled out over 13 billion dollar from the Indian stock markets in 2008, following severe credit crunch in the US and Europe are likely to again gain momentum in the later part of this year.

According to a latest India strategy report by BNP Paribas, currency appreciation could be a significant driver of FII inflows.

"Our outlook on Rupee appreciation implies that FII inflows into Indian equities could restart in H2CY09. Concerns on capital outflows still exist (due to deleveraging in developed markets), but our empirical analysis shows currency appreciation is a significant driver of FII inflows," BNP Paribas analyst Manishi Raychaudhuri said in the report.

The report stated that even as there is an ongoing debate about whether currency appreciation causes FII inflows or vice-versa.

Meanwhile, not giving any prediction about the time period by when the FII flows into the country may be revived, Coxe Advisors LLC Global Capital Markets Strategist and CEO Donald Coxe said that with return of confidence in the market the inflows would pick up.

"By some estimates, USD 650 billion in dollar-denominated bank loans to Emerging Market private sector banks need to be refinanced or rolled over in 2009, and that is a steep overhang.

If the refinancing moves smoothly for even a few months, there will be a huge return of confidence and FII will respond favourably," Coxe said.

The BNP Paribas report revealed that the Indian experience shows currency appreciation to be the causal variable and when the Rupee had started appreciating from mid-2002, FII flows had began accelerating a year later from mid-2003.

Further, brokerage firm Reliance Money said in its market strategy report that going forward, higher capital flows coming back led by strong FII buying and more than expected appreciation in the Indian Rupee would be the positive drivers for the market.

"Markets are likely to continue to be governed by the momentum driven by the global news flows, which is predominantly negative with potential earnings downgrades expected in the near medium term," the Reliance Money report said.

In January so far, FIIs sold as much as Rs 3,961.80 crore (nearly one billion dollar. However, they have been buying in debt segment to the tune of Rs 1,045 crore in the month.

FIIs had been net sellers in Indian equities to the extent of USD 13.3 billion in calender year 2008, the first time since 1999. And this outflow was on the back of a record inflow of USD 17.4 billion in 2007.