The benchmark Sensex index has increased sharply

On Wednesday the Mumbai stock exchange Sensex exchange ended up 1.1% at 5285.54m, a 44-month closing high.

A bumper harvest, gains by the rupee, improving relations with Pakistan and a strong showing by a pro-reform party in recent elections are boosting prices.

And as of October, foreign funds had invested more than $4.5bn (�2.6bn) in India this year.

That is more than six times the total from the year before, and demand is showing little sign of slowing.

Recovery hopes

The inflow of cash comes as the world's second biggest country is tipped for strong economic growth.

The Reserve Bank of India said last month that expansion could be as much as 7% this year.

That has helped strengthen the rupee against the dollar.

The currency has also been helped by India and Pakistan agreeing a ceasefire along the line of control in the disputed territory of Kashmir and the upgrading of diplomatic relations.

As well as the Sensex exchange hitting a 44-month closing high, the S&P/CNX Nifty Index of 50 stocks on the Indian National Stock Exchange also gained 0.7% to finish at 1686.90 on Wednesday.

Sanjay Panicker, head of equities at brokerage Darashaw Securities in Mumbai, said: "People have started believing in the economic recovery."

In recent state elections, the Hindu-nationalist Bharatiya Janata Party (BJP) made significant gains on a platform that espoused good governance and development.