This comes following a 10-month high net inflow of over Rs 122.66 billion in the capital markets (equity and debt) by Foreign Portfolio Investors (FPIs) in November.
According to data available with the depositories, FPIs infused a net amount of Rs 13.32 billion in equities and Rs 25.52 billion in the debt markets, taking the total to Rs 38.84 billion during December 3-21.
Marketmen attributed the inflow to persistent fall in crude oil prices, which dropped to over 15-month lows, and strengthening rupee against the dollar.
However, till December 7, FPIs were net sellers in the equity market, pulling out funds to the tune of Rs 3.83 billion. However, they had put in Rs 27.44 billion in the debt markets during the period under review.
"The sell-off was triggered on December 6, when FPIs sold net assets worth Rs 361 crore in a single day. This could be largely attributed to the weakness in the global markets due to the arrest of a high-profile Chinese executive which led to a sharp fall in the stock markets globally," said Himanshu Srivastava, Senior Analyst Manager Research, Morningstar Investment Adviser India.
"Investors fear that the relationship between the world's two biggest economies -- US and China -- could deteriorate following the arrest and hurt economic growth. Consequently, they chose to adopt a cautious stance and shun risky assets, such as their investments in emerging markets like India, which are more susceptible to weak global cues," he added.
The sell-off by FPIs was triggered after Chinese telecom giant Huawei's CFO Meng Wanzhou, who is also the company founder's daughter, was arrested in Canada for extradition to the US for suspected Iran sanctions violations.
FPIs have pulled out over Rs 842 billion from the capital markets so far this year. This includes close to Rs 340 billion from equities and Rs 502 billion from the debt market.