In a worst outflow in the last seven months, foreign portfolio investors pulled out Rs 28,852 crore from Indian equities in January, primarily due to attractiveness of the Chinese markets.

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This came following a net investment of Rs 11,119 crore in December and Rs 36,238 crore in November, data with the depositories showed.

Going ahead, FPI flows are expected to remain volatile as Indian equities continued their large underperformance compared to global markets, Shrikant Chouhan, Head of Equity Research(Retail), Kotak Securities, said.

According to the data, FPIs withdrew a net sum of Rs 28,852 crore from equities in January. This was also the biggest monthly withdrawal by FPIs since June 2022, when they had pulled out Rs 50,203 crore from equities.

The outflow in January is followed by a net withdrawal of more than Rs 5,700 crore from equities in the first week of February.

FPIs are selling in India and buying in cheaper markets like China, Hong Kong and South Korea where valuations are attractive, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

"This 'short India and long other cheaper markets' strategy has led to big underperformance of Indian market, so far this year," he added.

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While China, Hong Kong and South Korea are up by 4.71 per cent 7.52 per cent and 11.45 per cent respectively so far this year, India is down by 1.89 per cent, Vijayakumar said adding that this kind of underperformance is unlikely to last long.

Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said FPIs had adopted a cautious approach towards Indian equities ahead of the Union Budget and the US Federal Reserve meeting. Interestingly, both turned out to be positive indicators.

"The quarter percentage point of rate hike by US Fed signified the downward movement in the quantum of rate hikes. The Union Budget was also positive and focused on infrastructure and economic growth," he said.

However, these two factors couldn't lift sentiments largely due to the sharp sell-off in Adani Group companies shares which led the market into a tailspin.

Moreover, banking stocks were impacted on fears of Adani exposure impacting the lenders. However, the RBI message that Indian banking system is healthy improved sentiments leading to late rally in banking stocks.

On the other hand, FPIs have invested Rs 3,531 crore in the debt markets during the period under review.

(With PTI inputs)