The US subprime mortgage defaults that disrupted global markets has also sent shivers down foreign institutional investors (FIIs) investing in Indian markets. Experts attribute the pullout by FIIs to the hedge funds who are leveraging their strategy and credit spread in the domestic market.

Figures from the Securities and Exchange Board of India (Sebi) show that FIIs have been net sellers in the domestic market (till August 10) to the tune of Rs 1,492.70 crore or $ 368.90 million.

Parteek Agrawal, VP and head equities, ABN-AMRO Asset Management Company (AMC), said, ?FII are focusing on risk now. Most of the outflow that is seen in the domestic market is from hedge funds. As a result of the global selloff, FIIs are changing their strategy in India as well.?

When the first shock wave of sub-prime mortgage default hit the global street on August 1, the Sensex tanked 615 points, and the next day, FIIs were net sellers to the tune of Rs 982.70 crore or $ 241 million.

Similarly, on August 2, when the Indian market gained 49 points, FIIs were net sellers to the tune of Rs 419 crore or $ 104.40 million the next day. On August 6, when the Sensex fell by 235 points, FIIs sold their stake to the tune of Rs 1,166.60 crore or $ 288.70 million. This withdrawal of funds by FIIs led to a dip in the Sensex on that day, which closed below the 15,000 level at 14,903.03 points or down 1.55%.

?It?s a time to be cautious,? said Naval Bir Kumar, MD of Standard Chartered AMC. He added, ?The situation may worsen if there is any depreciation in the rupee and that might lead to unwinding of the carry trade. As a result, FIIs may intensify their pullout from the Indian markets.?

However, mutual funds (MF) are grabbing this opportunity to go shopping. In August, MFs pumped in Rs 567.10 crore in equity till August 9.

Industry estimates suggest that fund managers are sitting on cash of nearly Rs 7,000 crore. The amount garnered through new fund offerings (NFOs) during June and July are waiting to be deployed in the market.

For example, the NFO collection of Reliance Equity Advantage scheme of Rs 2,700 crore and Franklin Templeton High Growth Companies scheme of Rs 1,515 crore is waiting on the sidelines to enter the bourses.