The stock market is likely to continue on its upward journey this week, with sustained inflows of foreign capital expected to push local indices to new highs, analysts said.

“Investor sentiment is pretty upbeat on Dalal Street. September has witnessed an over 10 per cent rally in the markets. Going forward, we are likely to see continued inflows from FIIs, as the funds continue to remain bullish on Indian markets,” Consortium Securities AVP Vishwesh Choudhary said.

Brokers believe that despite certain weak economic data on the domestic front, the sharp rise in the Sensex and Nifty indicates the intensity of the current momentum. “We expect markets would remain firm, as it is supported by strong portfolio investments,” SMC Global Securities Head of Research (Retail) Saurabh Jain said.

Betting big on the Indian stock markets, FIIs have made a record investment of USD 19.43 billion (Rs 89,116 crore) in local equities so far this year, as per data available with capital markets regulator Securities and Exchange Board of India.

These huge inflows are pushing the benchmark indices to new highs almost every day. The Sensex regained the magical 20,000-mark last month on the back of the robust FII inflows.

The dream rally continued in the Indian equity markets during the previous week as the Sensex and Nifty touched new highs for 2010. On a week-on-week basis, the Sensex gained 400 points, or 2 per cent, to 20,445, while the Nifty rose by 125 points, or 2.1 per cent, to finish at 6,143.

“Though huge gains over the past five weeks have pushed indices into a highly over-bought situation, the underlying momentum would continue to push the markets further higher,” Globe Capital Markets Senior Research Analyst Nirav Vakharia said.

The rollover to the October series after derivatives expiry on September 30 also showed some indications of a bias towards the long side. Any small correction in the market has been attracting short-covering, which is also giving good support to the markets, analysts said.

“The overall undertone is likely to remain positive. Some caution should, however, be maintained at higher levels, as the markets have reached these levels too fast,” brokerage house ICICIDirect said in a note.

Brokers said there is a possibility of a severe correction in case of negative developments overseas. However, the possibility of that happening in the near—term is low, they added.

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