Big-ticket domestic investors and foreign institutional investors are slowly beginning to look at sectoral indices and not just the benchmark Bombay Stock Exchange Sensex for allocating investments.

Typically, these investors make allocations based on the performance of country indices. But now, they are looking at sectoral performances.

On a macro level, the Sensex has gained 11 per cent in the current calendar year to date, which is a weak shadow of the blistering 43 per cent gains posted by Thailand and the 30 per cent in Pakistan.

Yet, the $2 billion-plus investments by FIIs in the current year is proof of their belief that Indian markets are firmly in a bull phase.

Sectoral indices such as the cement, PSU, metals, commodity, two-wheeler and banking indices have all outperformed the Sensex.

"India meets all the pre-requisites of a bull market such as cheap valuations, low and falling bond yields, investor participation in profit and stock price improvement across sectors such as banking, automobile, PSUs and  cement," Enam Securities said in a recent report on India Strategy.

"The bull market phase of India is grounded in strong fundamentals such as dramatic fall in interest rates and widening of corporate economic value added, robust restructuring and a restraint on capacity expansion demonstrated by India Inc. The booming consumer demand based on favourable demographics, increasing affordability and opening up of outsourcing opportunities for many more sectors besides IT are also positives for the Indian market," the report says.

Enam argues that investors have realised that corporates have become much more competitive in the recent years, after many rounds of restructuring.

This implies that ensuing productivity gains will slowly rub off on stock prices, providing a sustainable long-term foundation for bulls to feed on.

Statistics show that as a result of the restructuring and consolidation over the last five years, the combined market share of top three aluminium players has increased from 77 per cent in 1997 to 100 per cent in 2003.

Similarly, the market share of top five players in the tyre sector has increased to 85 per cent in 2003 from 72 per cent in 1997 and of the top five groups in the cement sector has increased to 61 per cent from 32 per cent in the same period. In the paper sector, the share of top five players has increased from 32 per cent to 38 per cent.

The best is the case in petrochemicals, where the top player (Reliance) commands a market share of 70 per cent against 45 per cent in 1997.

On the demand side, falling product prices and lower interest rates have increased affordability.

This, in turn, has led to a boom in retail lending and consumption. Positive external linkages have also played a significant part in this fortuitous turn of events.

Increased overseas market opportunities have multiplied in sectors such as infotech, IT-enabled services, pharmaceuticals, auto ancillaries and engineering. Cheap skilled manpower provides India with a sustainable competitive edge.