(Yicai) Oct. 9 -- The Indian stock market has experienced the largest net sell-off by global funds in the past week since Jan. 1, 1999 as foreign investors dump Indian equities to cash in on the Chinese stock markets’ recent meteoric rise.

Foreign investors have withdrawn a net INR271.4 billion (USD3.2 billion) from the Indian equity market in the last seven days, according to the Securities and Exchange Board of India. On Oct. 3 alone, global funds sold off around INR155.4 billion (USD1.8 billion) of Indian stocks, a record high. The same day, INR8.5 billion (USD101.7 million) of Indian bonds were offloaded.

The main reason for the exodus from Indian stocks is due to high demand for Chinese assets, after the recent government roll out of a hefty stimulus package breathed new life into the country’s stock markets, market insiders said.

“Chinese assets are siphoning off huge amounts of money from the Indian market,” a senior Wall Street investment banker told Yicai. “While the bubble is about to burst in the Indian, US and other markets, Chinese stocks are seriously undervalued.”

China’s stock market has recently seen the largest surge since 2008 and has become a weather vane for global capital, the banker said. More US traders are keeping an eye on the after-market trading of Chinese stocks. During the recent week-long National Day holiday in China, when the mainland bourses were closed, they turned their attention to Hong Kong stocks to avoid missing out.

Sharp increases in crude oil price, the improved performance of the Chinese stock market with attractive valuations and intensifying geopolitical tensions are the main reasons why foreign investors are withdrawing from the Indian stock market, said Prashat Srivastava, an analyst at US financial services firm Morningstar.

The capital inflows into the Chinese equity market have made the Indian market more vulnerable, US investment bank Goldman Sachs said. Foreign institutions are dumping their largest and most liquid assets as soon as possible to extract cash which they are then pumping into the China market.

Goldman Sachs raised the rating of the Chinese stock market to “overweight” in its latest report on Oct. 5, expecting it to jump by between 15 percent and 20 percent. It also elevated the target price of the CSI 300 index, which tracks the performance of the top 300 stocks traded on the Shanghai and Shenzhen stock exchanges, to 4,600 from 4,000.

Editor: Kim Taylor