The Indian economy is set to gain as demand worldwide picks up and despite the recent volatility in the equity markets, after the election results, the country remains attractive for foreign funds, a study says.

The Indian economy will further benefit as global demand gains traction as despite a recent rally, valuations remain attractive and the market has significant upside potential, Bank Sarasin & Co notes in a equity strategy report.

"While the Indian market has risen about what may see a daunting 70 per cent since March, even another 30 per cent rally would leave it 15 per cent below its January 2008 high," said Philipp E Baertschi, Equity Strategist at Bank Sarasin. "Long-term investors may find it worthwhile to take up positions in the Indian equity market," he said adding the outcome of the elections may cause some short-term volatility, they should not detract from improving fundamentals.

Sarasin forecasts an increase in foreign funds to the Indian equity market after the elections. Valuations remain attractive, with the PE ratio of 15 firms slightly above the 15-year average. If the global economy recovers significantly in the second-half of 2009, "India could spring some positive surprises," Baertschi said.

The clear mandate for the Congress-led UPA coalition to form the new government after the 15th Lok Sabha elections, was buoyantly welcomed by the Indian stock markets, which gained more than 18 per cent in the past two trading sessions.