The outflow comes following an eight month-high inflow of Rs 19,728 crore in November, mainly due to the government's plan to recapitalise PSU banks and surge in India's ranking in the World Bank's ease of doing business.
This was the highest net investment by FPIs since March, when they had poured in Rs 30,906 crore in the equity market.
According to the depositories data, Foreign Portfolio Investors (FPIs) withdrew a net amount of Rs 4,089 crore ($634 million) from equities till December 8.
However, such investors had put in over Rs 2,200 crore in the debt markets during the period under review.
"Rising crude prices and widening fiscal deficit prompted FPIs to adopt a cautious stance for now. As per the recently released data, India's fiscal deficit rose to 96.1 per cent of the full-year target by the end of October. The fiscal deficit data, which was released on November 30 overshadowed a resounding GDP growth of 6.3 per cent for September quarter, which was also released on the same day.
"In addition to that, appreciating rupee and rising domestic markets, too, provide a good profit booking opportunity to FPIs, especially before Christmas and new year," said Morningstar India's senior analyst manager (research) Himanshu Srivastava.
It has been a tremendous journey for the Indian equity markets in the calendar year 2017. After taking a break from buying into Indian equities in the months of August and September and returning cautiously in October, FPIs bought Indian equities in abundance in the month of November. However, they withdrew funds in this month so far.
Going ahead, the FPIs can be expected to continue with their cautious approach to investing in Indian equities for the remaining month given the Gujarat elections. Additionally, they would also be looking for further signs of economic growth before deciding on India allocations, Srivastava said.
Even if there are net outflows in December, we will end the year with higher net inflows from FPIs compared to the last two years, he added.
Overall, FPIs have invested over Rs 53,000 crore in equities so far in 2017 and another Rs 1.5 lakh crore in debt markets.