The BSE Sensex ended a tad above the psychological 18,000-mark for the first time in seven months, rising 147 points or 0.8%. The Nifty gained 41 points, or 0.76%, to close at 5,431.
Markets could be impacted if the Fed decides to hold back against pumping fresh money into the US banking system.
Since August 1, FIIs have pumped in close to Rs. 11,755 crore into Indian equities, taking the total purchase tally to Rs. 65,000 crore in 2012 so far. Brokers said part of such flows were in anticipation of a QE3.
Even if the Fed announces a QE-3, India may not attract much flows as stock valuations are already at a premium to most other emerging market peers. The Sensex is trading at 14 times one-year estimated earnings, while China is trading at 11.6, Russia is at 5.9 times and Korea is at 10.38 times.