Seasoned investors will tell you that stock prices have always been a function of demand and supply. Right now, the institutional investors have much funds in their hands and that has led to new price discoveries. India has a particular reason to be happy.

The Indian economy needs private funding for infrastructure projects to keep its GDP growth on the upclimb. Private banks and government investment arms, which have more than $10 trillion under management globally, are looking forward to increase their exposure in both debt and equity instruments in the region.

Availability of funds has led to a re-rating of the companies in theregion. The funds have been certainly selective, narrowing down their choice on financial services, telecommunication, and commodities. Technology and industrial stocks too have found favour. But each choice is made carefully in the background of the country and its product profile. In India, bank and financial institution stocks have found favour, because the prospects for these players are seen as attractive in the light of improved growth prospects in the economy over the next three years.

The continued overdrive on the SBI and ICICI counters are therefore easily explained. As to how the individual players frame up their game strategy would bee keenly watched by the fund managers. The restructuring of the legal framework for NBFCs too has infused life into some of these companies.

Continued positive outlook for global aluminium prices continues to drive investment in Aluminium stocks. As Hindalco takes a serious look as to the viability of some of its projects in the pipeline, the markets have beenliking the stock better. At Indal, better management is likely to lead to better rating of the stock in the markets.

The petroleum and refining stocks have found new favour with FIIs. This is not surprising. These companies have been structuring themselves on globally competitive levels. In contrast to the US oil companies, who posted negative results, the Indian story is extremely attractive. It is no surprise that fund managers found Hindustan Petroleum underpriced.

The polymer and fibre companies are not left behind in the overall market appreciation. Reliance Industries, which has patiently built up world class and well integrated plants, is now reaping its fruits. Ofcourse transparency and shareholder value has much to do with stock prices. And Reliance has made a determined effort to put itself in better light.

If FII investments in Indian stocks have doubled in the month of May it is not without reason. India, in fact has moved up in the buying list of FII fund managers, who have found theirinvestments here profitable. The BSE Sensex went up by 19 per cent from 3326 points at the end of April to 3963 points on May 31. The only other market that gave comparable returns was Kuala Lumpur's composite index which appreciated by 10 per cent in the same period. Bangok's Set dropped from 459 to 453 points and the Philipines index dropped by 0.57 per cent.

The Sensex has been riding on the back of commodity stocks, which are seen to have bottommed out. But this would not have been possible but for a change in the outlook for the entire Asian region.

Severe restructuring of the economies in the region including the restructuring of the banking and financial sector, especially the Korean excercise, did impress the global investors. In fact, the GDP growth rate bouncing back smartly with support in export levels in the Asian econoomies led the western fund managers to recognise that the region offered the best prospects for the time being. And this in turn led the fund managers to see the region havingthe best prospects for return on a global basis.

And searching for avenues to invest a good flow of funds, the FIIs discovered that the Indian commodity stocks were underpriced compared to their cousins in the region. The rising oil prices lent a strong helping hand, when it came to refinery stocks.

Apart from the FII investments, investments from high networth individuals of Indian origin as well as mutual funds would continue to drive stock prices.

Investors in mutual funds are also turning increasingly towards equity funds than income funds. This has become possible by a change in perception. For the first time in the last 3 years, the Indian investor does see the prospect of a steady growth in the economy and therefore in stock prices. And given the lower level of returns from the fixed return instruments, they are increasingly turning to mutual funds.

The confidence level too has been on the ascent due to good performances put up by a number of mutual funds in the private sector, which arecompeting in fund management. Portfolio turnover has gone up 5 times compared to the figures earlier in the funds.

The Finance bill too has given sops to the mutual funds. The discrepancy in terms of the long term capital gains tax as applied to mutual funds is expected to be removed soon. This would enable even better flow of investment into mutual funds.

It is not possible for individual investors to be tapping the opportunity in the software sector given the huge stock prices, as individual investors. You find a twin attack here. Companies are planning to reduce the face value of their stocks so that a larger proportion of the public is able to participate. At the same time the mutual funds are floating sectoral funds. These would end up attracting more funds to the stock markets. And good scrips are bound to be picked up whenever prices dip. For a change, demand will start chasing equity.

It is time therefore, that even small investors take a second look at stock markets. It is time to be investing,if only a small amount via the mutual fund, into stock markets for the next three year span. That is the only way you can earn better than the 9 per cent offerred by the banks on term investments.