MUMBAI: After months of record investment, foreign portfolio investors (FPIs) turned to net selling as August began.

Heavy investment in Indian equities over the past five months has led the Indian stock market to soar to record highs but FPIs made a net withdrawal of Rs 2,000 crore from Indian equities in the first week of this month. The move by Fitch Ratings, which downgraded the US's credit rating, is what triggered a U-turn by investors.

Attracted by uncertain global economic conditions and India's economic growth, huge FPI inflows flowed into India in the past five months. Moreover, FPI investments in Indian equities were over Rs 40,000 crore last May, June and July. Net investment was Rs 46,618 crore in July, Rs 47,148 crore in June and Rs 43,838 crore in May. However, foreign investors had withdrawn Rs 34,626 crore in January and February.

With this, net investment in the equity market has reached Rs 1.21 lakh crore and net investment in the debt market has reached Rs 21,600 crore so far this year. FPIs continued to buy stocks in the automobile, capital products and financials sectors. It was also notable that they started buying IT stocks which they had sold earlier.

According to figures from depositories, foreign portfolio investors withdrew Rs 2,034 crore from Indian equities during the period from August 1 to 5. However, FPIs were net buyers in the Indian debt market during the review period, with an estimated investment of Rs 1,151 crore.

Also, the continued high valuation of stocks and small profit booking has contributed to this flow, according to economists. A sharp rise in US 10-year bond yields above 4% has dampened recent capital inflows to emerging markets. If US bond yields remain high, FPIs are likely to continue selling or refrain from buying.