Foreign institutional investors sold a net Rs 16,877 crore or Rs 168.77 billion in Indian shares in August, more than the previous monthly record of Rs 15,347 crore or Rs 153.47 billion in October 2008, according to data from National Securities Depository Limited
The sales helped push the Nifty down 6.6 per cent in August, its worst monthly performance since November 2011.
Analysts said the sales were largely a result of the overweight positions in India by foreign investors, who have been heavy buyers since 2012.
Foreign investors had been net buyers as early as July when India was seen as benefitting from outflows from China.
They remain net buyers of Rs 27,512 crore or Rs 275.2 billion this year.
"If people are selling India it doesn't necessarily mean they are negative on India.
It could be the broader asset class is what they are negative on, in this case equities and emerging markets," Gautam Sinha Roy, vice president and fund manager at Motilal Oswal said.
Data on Tuesday showed India's economy grew 7 per cent in the April-June quarter from a year earlier, much slower than expected, but a rate that matched expansion in China.
However, political wrangling has stalled crucial reforms, and investors are concerned that Prime Minister Narendra Modi's reform agenda will fall short.
Meanwhile, a delay in the recovery in earnings has led Macquarie, Barclays and Ambit to downgrade Indian shares over the last few days.