Overseas investors have pulled out nearly Rs 5,300 crore from the Indian debt market since the beginning of the month.
In comparison, equity market has witnessed modest inflow of Rs 1,150 crore during the period.
Foreign investors were gross buyer of debt securities worth Rs 9,175 crore till August 14, and sellers to the tune of Rs 14,448 crore - a net outflow of Rs 5,273 crore, according to the latest data.
The huge outflow comes after Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) poured in around Rs 80,000 crore in the first seven months (January-July) of 2014.
Market experts attributed the huge outflow to several factors such as geo-political unrest in Ukraine, Iraq and Gaza along with global economic issues like the defaults in Argentina and Portugal and the recent SLR (statutory liquidity ratio) cut by the Reserve Bank of India (RBI).
However, they maintained that the long-term prospects of staying invested in India are still positive.
Foreign investors have pumped in a staggering Rs 80,539 crore ($13.4 billion) into the Indian bond market so far this year, higher than investments of Rs 74,068 crore ($12.33 billion) into equities during the period.
From the beginning of June, FIIs along with sub-accounts and qualified foreign investors have been clubbed together by market regulator Sebi to create a new investor category called FPIs.