Foreign portfolio investors (FPIs) pulled out as much as Rs 6,834 crore from Indian markets in the first four trading sessions of February.
As per depositories data, FPIs took out Rs 3,627 crore from equities, Rs 3,173 crore from the debt segment and Rs 34 crore from hybrid instruments.
Previously, FPIs have been net sellers for the fourth consecutive month.
"FPIs have sharply increased the pace of selling after the US Fed announcement last week in which it indicated an end of the ultra-loose monetary policy regime," said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.
Besides, globally, the bond yields have surged in recent times on expectation of a hike in interest rates by the US Fed, he added. This has made investors risk-averse prompting them to cut exposure to riskier assets and move towards safe havens such as gold.
"On the domestic front, the pro-growth budget did manage to check the exodus of funds to some extent. However, the wider effect of the budget on foreign flows would be clear in the coming weeks," he further added.
Despite the recent correction in the markets, Indian equities continue to tread at elevated levels.
With the current global backdrop, FIIs have been moving out to the markets which have rich valuations and investing in the ones offering relatively attractive valuation and better risk-reward, as per Srivastava.
"FPIs sold heavily in banks and IT and were buyers in metals," noted V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
For the future of FPI investment, Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities said "Equity markets are expected to remain volatile, given the high inflation and Fed's expected to increase the interest rate in the coming month... With higher inflation and rising bond yields, FPI flows in India are likely to remain volatile."