After pouring hefty funds into the Indian equity market in the first three months of the year, overseas investors turned bearish in April and pulled out Rs 777 crore amid S&P lowering India's credit outlook to negative from stable.
This was also the first instance of monthly net outflows by FIIs since November 2011.
In the current month so far, Foreign Institutional Investors (FIIs) made gross purchase of equities worth Rs 39,008 crore and sold shares valued Rs 39,785 crore translating into a net outflow of Rs 777 crore, according to data available with the market regulator Sebi.
Market experts attributed the outflow to a host of factors including government's anti-tax avoidance rule (GAAR) proposal announced in the Budget that has been the real dampener for several FIIs whose clients had used participatory-notes to invest in the Indian stock market.
The sentiment was further soured by ratings agency S&P's move to lower India's outlook to negative from stable, citing slow progress on its fiscal situation and deteriorating economic situation, experts added.
In fact after S&P's move, FIIs have withdrawn nearly Rs 1,300 crore from the stock market in the last three trading sessions.
In the first three months of 2012, FII had invested a record Rs 43,951 crore. Of this, Rs 10,358 crore was poured in January, Rs 25,212.10 in February and the rest Rs 8,381 crore in March.
The strong FII inflows in January-March period was attributed by marketmen to the Reserve Bank of India's (RBI) pause in rate hikes and the improving liquidity position.
During April, foreign fund houses pulled out Rs 777 crore from the stock market and Rs 2,111 crore from the debt market, taking the collective net outflow by FIIs in stocks and bonds to 2,888 crore.
FIIs, the main drivers of the markets that gained nearly 13 per cent in the first three months of 2012, have turned negative on equity so far this month.
After taking the latest withdrawals into account, FIIs still left with an investment of Rs 43,173 crore into the equity market so far this year and Rs 17,287 crore into the debt market during the same period.
For the calender year 2011, FII pulled out over Rs 2,700 crore from the equity market.
The BSE 30-scrip barometer Sensex has fallen 217 points, or 1.24 per cent, this month till April 27, to close at 7187.34 points.