However, FII investments are expected to slow down in the coming days following the meltdown in foreign markets witnessed on Monday. The sharp fall in international markets was triggered by fears of the Fed hiking interest rates at its meeting on Tuesday. After this break, fund managers, brokers and analysts expect a resurgence in FII investments.

In the event of the rate hike coming through, the flow of foreign funds to the Indian markets is likely to be interrupted. FII fund allocations will be disturbed by the realignment of the rates that will follow. Till the realignment is completed, FIIs areunlikely to pump in huge funds into the Indian markets.

Fergus Fleming of HSBC Securities sees FII inflows into Indian markets slowing down temporarily, though he does not expect a change in their view in the medium term. ``Though there will be a temporary slowdown the view would continue to be positive.''

Tushar Shah, BSE member, does not see any major impact on the FII investments in the event of a Fed rate hike. ``Our economy is not pegged to the dollar compared to other emerging markets in Asia.'' Besides, it is important to note that interest rates in India are likely to go down, he points out.

On Monday, most Asian markets were down following the 193-point fall in Dow Jones last Friday. The fall in the Dow was triggered by expectations of a Fed rate hike. The correction witnessed on Monday in the Indian markets was expected. This will make valuations cheaper in select stocks which, in turn, will see FII purchases in these counters, says another BSE broker.

Deven R Choksey, managing director,Kisan Ratilal Choksey, also sees this as a short-term phenomenon. ``The pouring of funds into debt markets may follow an increase in interest rates as a corrective measure to the inflationary pressures in the US. But this would be a short-term phenomenon. This is actually a positive factor as there will be massive offloading of equity in the US markets leading to surplus funds again being generated and after putting money into bonds the additional funds will repeatedly make way into the emerging markets".

S Sankaranarayanan, fund manager, Tata Mutual Fund, expects a realignment of funds from equity to bonds and debt market in the US but it will be short-term. ``The US markets have rallied and there is surplus money in the markets which has been making way into the emerging markets. The markets could see a correction with the funds flow into the markets slowing down temporarily".

Apple Mutual Fund assistant vice-president Malay Sameer says that in the event of an increase in interest rates, bonds will turnmore attractive and a realignment of funds from equity to the debt market could follow. ``There was a tremendous amount of cross-border transactions due to equity overheat in the US market. But with the increase in interest rates the bonds will be more attractive and in the short to medium term more money will flow into bonds than equities," he adds.