For the first time in five years, Nilesh Dedhia is buying Indian stocks.

The 48-year-old owner of a die-casting factory in Mumbai is among a growing number of local investors returning to the $1.2 trillion equity market on speculation national elections in May will deliver a government with the mandate to revive economic growth from a decade low. That optimism is spurring the longest stretch of mutual-fund inflows since 2009 and helping the S&P BSE Sensex (SENSEX) sidestep the biggest equity losses worldwide in the three other BRIC nations of Brazil, Russia and China this year.

India’s bulls are putting their faith in the opposition Bharatiya Janata Party led by Narendra Modi, who oversaw annual economic expansion of 10 percent as the head of Gujarat state since 2001 and has pledged to boost investment if he takes power from Prime Minister Manmohan Singh’s Congress Party. The Sensex rallied to a record this week on speculation the BJP is gaining momentum among voters, even as the MSCI BRIC Index extended this year’s drop to 9.6 percent.

“Investors are taking a view that the election outcome will be favorable and have begun to put money back into stocks, which is a good sign,” Sam Mahtani, a London-based director of emerging markets at F&C Asset Management Plc (FCAM), which oversees about $150 billion, said by phone on March 7. India is the firm’s biggest overweight position in emerging markets, he said.

David Fuller's view

Governance Is Everything and the strong prospect of Narendra Modi leading India from mid-May will dramatically change investor perceptions, as we are already beginning to see.  Subscribers are very familiar with this story and the Sensex is showing a very significant breakout.