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India is the best performing market in May so far with a 2.8 per cent rally in Nifty as against the negative returns in European markets and just 1 per cent return in S&P 500. The performance of other emerging markets also is lacklustre.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, says that there are two major drivers of this rally -- one, sustained FPI inflows; two, India's improving macros.

FPIs who were continuous sellers in India in the first three months of this year turned strong buyers in May. Through May 25, FPIs have invested Rs 29,668 crore through the stock exchanges. They have invested an additional Rs 5,136 crore through the primary market, he added.

This sustained investment by FPIs is a reflection of their confidence in the Indian economy and corporate earnings for FY24 and beyond.

The latest macro data reveals that the 'twin deficit' problem -- stressed banking system and highly leveraged corporate sector- that plagued the Indian economy for long, is behind us. The banking system is in the pink of health with record profits and low NPAs. Corporate sector is deleveraged and so the corporates can now borrow and invest and banks have adequate money to lend. The revival of capex in the economy, though nascent now, is set to pick up.

S.Ranganathan, Head of Research at LKP Securities said as recessionary clouds and risk of defaults engulf many developed economies, India as one of the largest democracies with the largest population seems like an oasis witnessing an urban revolution on the back of highway and infrastructure development.

Central government schemes like AMRUT together with Summits like the G20 seem to have incentivised developers to take people towards the hinterland where the growth rates are now heading north. With inflation well within the upper tolerance limits, RBI has paused on rate hikes and India Inc has delivered on its fourth quarter earnings to meet street expectations and in a slowing world, India is amongst the fastest growing large economies this fiscal. It therefore comes as no surprise that FII's have invested Rs 44,000 crore till date during this financial year into Indian Equities, he said.

As Howard Marks said, "Investors make money when they do things other people are unwilling to do". At a time when the consumption leg of the economy is a bit slow, the focus shifted to the investment leg powered by a capex-driven Budget, he said.

Surjitt Singh Arora, Portfolio Manager at PGIM India Portfolio Management Services, said clearly, we see India as a standout proposition in the global economy. Focus on continuous asset creation, benign policy environment, prudent fiscal management and improved global standing augurs well for the economic growth of the country.

Further, lower leverage by India Inc and improved balance sheet of the financial system provides fodder for growth as demand levels in the economy move up in tandem with income levels, Arora said.

While global events can be a challenge, we reckon India is not only well placed to weather these challenges, but also benefits from the same in the longer run. We see consumption and manufacturing spearheading India's growth led by demographics, higher per capita income and penetration with exports remaining a longer term but invaluable growth driver, Arora said.

DSP Asset Managers in a report said Indian economy and corporate earnings remain robust. Many large cap companies have outperformed market estimates which has kept the market sentiment upbeat. It has indeed been a smooth run for the Indian stock market over the past few weeks in this earnings season.

While many believe that the market has become quite complacent, data points otherwise. The India Volatility Index (VIX) has recorded the lowest readings recently, as seen from the chart below. Such ultra-low VIX is generally a good indicator of an ensuing bull market, the report said.