Overseas investors have pulled out nearly Rs 18,500 crore (about $ 3 billion) from the Indian capital markets so far this month, amid concerns over the US Fed policy and the depreciating rupee.
The outflows as of July 26 were about Rs 12,081 crore ($ 2 billion) from the debt market and Rs 6,394 ($ 1 billion) from equities, according to data on net FII investments with market regulator Sebi.
Foreign institutional investors (FIIs) had withdrawn a record Rs 44,162 crore ($ 7.5 billion) from the debt and equities markets in June.
The weakness in the Indian currency was instrumental in overseas investors exiting the debt markets as the rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with, according to market experts.
The rupee slumped to a lifetime low of 61.21 (intra-day) against the US dollar on July 8. Since April 30, the rupee has depreciated by about 13%. The currency closed at 59.04 against the dollar on Friday.
That apart, there was turmoil in the global markets after the US Federal Reserve said it may taper the $ 85-billion-a -month bond purchase programme later this year and end it next year if the US economic recovery is up to its expectations.
The Fed's loose monetary policy has driven asset prices higher, including those in emerging markets, and fears are that inflows may be hit if the US monetary stimulus comes to an end.
FIIs had been aggressive buyers of bonds in the first five months of 2013 on account of higher yields offered by the government and corporate debt. The debt market witnessed a net inflow of almost Rs 25,000 crore in January-May this year.
So far this year, foreign investors have pulled out a net Rs 21,169 crore ($ 3.2 billion) from the debt market, while foreign investment in the country's equity market is a net Rs 65,785 crore ($ 12.4 billion).
As of July 26, the number of registered FIIs in the country stood at 1,756 and the total number of sub-accounts at 6,426.