For months now, the headline news from India has been about graft, political instability and a headless government in policy limbo. The rupee collapsed and foreign media wrote off Prime Minister Manmohan Singh as an underperformer.

Meanwhile, unnoticed by many, foreign investors kept nibbling away at Indian stocks. The result is apparent today: from January to the end of this week’s trade on Friday, India is the best-performing market in Asia, bar none. India’s stock market, measured by the 50-share Nifty, returned 23% in the year-to-date; Hong Kong’s Hang Seng index came a distant second, growing 12.5% in the same period. That’s not bad for a country almost written off as a basket case by the commentariat.

In fact, a wider scan around the world shows that India has been the second-best performing market in the world, after Germany. The German DAX index managed to outpace India’s growth, with a year-to-day sprint of 26%. This is easy to explain: though Germany has been the strongest economy in Europe, a weak euro has made its exports tremendously competitive.

For overseas investors in India, things are going to get sweeter. The rupee has started to strengthen and if it continues to do so, foreign investors will find their returns juiced by the appreciation. Friday saw the rupee surge to Rs 53.45 against a dollar, up sharply from its one-year low of Rs 57.30. Some brokerages predict levels of around Rs 49 to a dollar by the end of the year. This could become a self-fulfilling prophecy: a rising rupee will encourage more dollar inflows, adding to reserves and strengthening the currency.

Unlike the commentariat, investors read the India story correctly. The biggest gainers are companies that are focused on India’s domestic growth: turbine and infrastructure builders, metal makers and local banks. IT and pharma players, which depend heavily on wobbly export markets, have been dumped. With Mamata Banerjee and her Trinamool Congress (TMC) pulling out of the coalition, the dynamic of governance could get faster: unlike the TMC or the Left, new allies like the SP or the BSP have few hang-ups about reforms. SP leader Mulayam Singh has made noises opposing foreign supermarkets and his government in Uttar Pradesh might keep them out, but that’s about it.

There are plenty of things that can be done without going to a bickering Parliament and trying to get laws changed. Farm markets can be made more efficient, a world-class irrigation system can be built, the Delhi-Mumbai Infrastructure Corridor can get started up, high-efficiency solar panels can be introduced in villages and so on. State electricity boards need reforms and New Delhi must nudge them on.

In most places around the world, investor sentiment tracks political developments closely. In India, to use an unwieldy phrase, the two narratives have decoupled. While the political noise turned to toxic waste, savvy investors saw the light and put their money where the chattering mouths were not. The last nine months show that whatever the political wrangle, the money never sleeps.