Foreign investors are pulling money out of India’s equity market, cutting their exposure as the US interest rate cycle turns and millions of domestic savers continue to pile into richly valued stocks.

Foreign institutional investors have turned net sellers of India-listed shares in August, with net outflows of more than $1bn, according to data from Bloomberg and the Securities and Exchange Board of India. Year to date inflows stood at $2.6bn, well below the $22bn recorded last year.

The shift comes after years of strong domestic stock market performance, particularly the blue-chip Nifty 50 index. Overseas investors sought returns outside China, where the economy has struggled for momentum since the pandemic. India’s weighting in international indices rose to reflect the inflow of money while new domestic investors also helped to drive up valuations.