Foreign Institutional Investors (FIIs) have pumped in more than Rs 90bn (~US$1.67bn) in the country's equity market so far this month. Between Sept. 1 and Sept. 21, FIIs were gross buyers of Rs 390.37bn, while they sold equities totaling Rs 298.92bn, translating into a net investment of Rs 91.45bn, according to SEBI data.

FIIs also invested Rs 9.09bn in the debt market during the period under review.

FIIs investment in the country's equity market has reached to Rs 722.15bn (US$14bn) so far in 2012 while pouring in Rs 254.27bn into the debt market.

The acceleration in FII Inflows into Indian markets has been mainly on account of the slew of reform measures announced by the Government, including permitting up to 51% FDI in multi-brand retail and allowing foreign carriers to buy up to 49% stake in domestic airlines.

FII inflows are likely to continue in next 6-8 months if the Government remains on the path of reforms.

The BSE Sensex has gained ~1.5% so far this month and closed at 18,752.83 points on Friday. 

Separately, a report by UK's Barclays Capital says that India may get US$2bn in additional FII inflows per year in the medium term after the Government last week cut the withholding tax on overseas borrowing by local firms.

The tax cut would reduce the cost of overseas borrowing by 75-100 bps for companies, assuming current borrowing costs of Libor+500 bps, Barclays Capital says, adding that FII inflows would have a significant impact given India faces a negative balance of payments (BoP) of ~US$15bn.

"However, we think the bigger immediate impact will be on expectations as this will likely (be) seen as indicating the government's resolve to continue to take positive steps to revive investor sentiment," Barclays Capital says in a statement.