Overseas funds, who own about a tenth of India's equities, sold $738.5 million worth of shares in May -- the biggest net outflow since foreign funds were let in more than a decade ago.

Including debt, overseas investors sold a net $796.8 million worth of Indian assets last month, more than doubling the record of $317 million in July 2000.

Foreign purchases since the start of 2003 are still more than $10 billion. But with a leftist-backed government coming to power, investors worry about the pace of the economic reforms which have helped drive India's sizzling growth.

India's stock market is Asia's second-worst performer in 2004, with the key Bombay share index having dived 17.2 percent, compared with Thailand's 17.8 percent fall. The two markets were Asia's biggest gainers in 2003.

"The current levels adequately reflects market concerns. So there is value, but it can be destroyed if the government comes out with regressive moves such as raising taxes," said Hong Kong-based Ashish Goyal, a portfolio manager with Prudential Asset Management, of the Bombay market.

"It will be wait and watch game for a while. The confidence will return if economic reforms are accelerated. We already know the fate of privatisation, but if other reforms are pushed ahead things could improve," said Goyal, who manages about $1 billion in India, and whose fund is still overweight in the country.

At 2005 earnings, the Bombay index trades at about an 11-12 price to earnings multiple, which analysts say is attractive considering an estimated profit growth of about 20-25 percent.

Foreign funds have also exited emerging markets on worries about a likely increase in US interest rates. They sold over $1 billion worth of stocks in Thailand, $3.3 billion from Taiwan and more than $1 billion from Korea in the past month to May 23.