Foreign institutional investors are largely "overweight" on Indian equities and they have been buyers every month for almost a year excluding January 2014 when they were marginal net sellers.
"FIIs hold USD 320 billion of stocks in Indian equity markets," UBS said in a research note today adding that given the continued FII inflow, more so in a narrowing basket of quality sectors/stocks, a lot of investors worry about limited room to buy.
"Our calculations show that FIIs can still buy around USD 150 billion worth of stocks in the MSCI India (around USD 135 billion in the Nifty)," the report added.
The global brokerage major believes the Indian equity markets may consolidate but there is still room for bullishness.
"Markets may consolidate after the run up but significant downside may be limited," the report said.
"We remain bullish on Indian equities as current valuations are not expensive in our view and growth recovery hopes will likely ensure premium valuations," UBS added.
UBS's Nifty 2014 year-end target is 8000.
The wide-based Nifty was trading down at 7,745.05, down 45.40 points in late afternoon trade today. The index had hit an all-time high of 7,835.65 on July 24.
However, Domestic Institutional Investors (DIIs) continue to remain sellers, with net selling of USD 5.8 billion in 2014 so far this year.
In the June quarter DII ownership increased in real estate, autos, IT services and cement, while it declined in power utilities, telecom, pharma, oil & gas and consumers.
Meanwhile, mutual funds have turned buyers of Indian equities since May this year after nine quarters of selling.