On Wednesday, the BSE Sensex closed above the 4700-mark with the Sensex touching the intra-day high at 4729.38. With a net gain of 84.13 points, the Sensex closed at 4705.13 against its Tuesday close of 4621. Earlier, the index had opened the day on a firm note at 4648.27, also the day's low. The Nifty on the other hand opened 1326 (also the day's low), touched its all-time high at 1371.90 and with a net gain of 40.65 points closed at 1363.35 points against the previous close of 1322.70 points.

The recent rise in the market indices is despite the net FII investment outflow, which, for the current month stands at Rs 340.4 crore. Against the net outflow of this volume, the Sensex has gained around 216 points or close to 5 per cent in the last three trading sessions, beginning Monday. And against this backdrop, the outstanding positions are also swelling by the day and were in excess of Rs 2100 crore on Tuesday.

However, the market players are clearly divided over the reasons for the buoyancy despite the marked outflow and the rising levels of net outstandings. According to Shyam Bhat at Tata Mutual Fund, ``the current withdrawals by the FIIs are a temporary phenomenon. And given the declining badla rates that was witnessed over the last few weeks, the speculators are feeling comfortable to purchase long. It seems the operators are warehousing for the FIIs and thus trying to play one up on them.''

According to Ketan Desai at Asit C Mehta Investment Intermediaries, since the prices have appreciated substantially over the last few months, ``a Rs 2100-crore net outstanding position at the present level is not really comparable even with a Rs 1500-crore net outstanding six months back. And as the markets rise, the outstandings are going to rise.''

Another reason, according to another market player, is that the speculators and the retail investors are already factoring in a BJP victory along with stable allies in the coming elections and this is one of the reasons for the recent bullish fervour in the markets.

According to Desai, the FIIs are actually taking some funds out of India as the world markets expect a rate hike announcement by the US Federal Reserve by the end of August. ``In such a scenario, we could see the rupee depreciating which would give the FIIs the chance to enter later where a dollar would buy more rupee than now,'' says Desai.

However, according to Neel B Dalal, given the current buoyancy in the market, at a later stage the FIIs might have to re-enter the stocks at a premium. ``And by trying to hedge against the currency risk now, they might even have to pay more while entering at a later stage,'' says Dalal. According to him, the FIIs are presently busy in churning and reshuffling of their portfolios. According to the FII investment data released by Sebi, during the current month the total turnover by the FIIs was to the tune of Rs 2660 crore, which translates into an average daily turnover in excess of Rs 200 crore.

However, for Parag Jhaveri at Ask-Raymond James, ``caution is the buzz word'' as a correction looks inevitable and a Sensex level of 4500 should be a more healthier. Also, according to Jhaveri, a number of second and third rung scrips are hitting the circuits regularly which points towards a correction. On Wednesday, index heavyweight ITC was at the forefront of the rally with the scrip going up to Rs 1020 from its previous close of Rs 950. The counter topped the turnover table on both the premier exchanges.