Foreign investors seem to have embraced Indian stocks yet again with net inflows crossing Rs.1.2 lakh crore ($23 billion) in 2012 and taking their total cumulative investment in India’s equity market to an all-time high of $125 billion.

The net inflow of Rs.1.23 lakh crore during 2012 is the second-highest for a year and comes after a net outflow in the previous year 2011 — preparing the ground for even better times ahead in 2013 on the back of continuing reform-push by the government and market regulator Securities and Exchange Board of India (SEBI).

At gross level, foreign institutional investors (FIIs) purchased stocks worth about Rs.6.5 lakh crore in 2012 and sold equities to the tune of Rs.5.3 lakh crore — translating into a net inflow of Rs.1,21,652 crore ($23 billion).

This was the second highest net inflow by FIIs in a single calendar year since their entry into Indian capital markets in 1992.

In 2010, overseas investors had made a record Rs.1.33 lakh crore ($29 billion) net investment into theshare market.

However,  FIIs had pulled out a net Rs.2,714 crore ($358 million) from the share market in 2011.

Despite their unpredictable ‘hot money’ investment, these overseas entities have been amongst the most important drivers of Indian stock markets.

The huge inflows came despite the number of FIIs registered in India dipping to 1,755 this year from 1,767 at end 2011.

Market experts believe recent reforms undertaken by the government to boost growth have led to renewed interest among foreign investors.

FIIs also poured money into the debt market, infusing Rs.33,777 crore ($6.4 billion) duringthe year in this segment.