How much juice is left in the Indian equity story? Mumbai’s share index has raced to successive record highs and has gained 24 percent so far this year in dollar terms as investors have bought into Prime Minister Narendra Modi’s reform promises.

Foreign investors have led the charge through this year, pouring billions of dollars into the market. Now locals are also joining the party – Indian retail investors who steered clear of the bourse for three years are trickling back in – they have been net investors for 3 months running and last month they purchased Rs 108 billion worth of shares, Citi analysts note. 

Foreigners meanwhile have been moving down the market cap scale, with their ownership of the top 100-500 ranked companies rising from 13% to 15% over the quarter. That’s behind the broader BSE500 index’s outperformance compared to the Nifty index, Citi said.

Citi earlier this month predicted another 3 percent gains for Indian stocks by year-end. Equity derivatives indicate that is feasible – stock exchange data shows foreign investors are loading up on call contracts on the Nifty index at the 8,000 point and 8,100 point levels -a call option gives its holder the right to buy the underlying cash shares.   The index is currently trading at 7,800 points.

Now people are starting to wonder how much further this has to run.

One problem with the Indian market is the valuation. Always expensive by emerging market standards, Indian shares are trading at more than 16 times forward earnings on average, a bit above its long-term average and the second priciest market in Asia. Growth is chugging along at below 6 percent and high inflation means interest rates may rise further. Investors’ positioning moreover is pretty heavy -India is the second biggest emerging market overweight among funds after China. HSBC analysts advise keeping India at marketweight in portfolios, arguing that market upside would be limited from here.