India's domestic institutional investors have been sapping up shares this year, helping put a floor under its stock markets even as foreigners flee on concerns over the country's accelerating consumer prices, rising global yields and a falling rupee.

That has propelled Indian shares close to a new high for 2018, outperforming most of their faltering Asian peers this year.

India's broader index has gained about 3 percent this year, compared with a 5 percent fall in MSCI Asia ex-Japan index as emerging markets were hit by rising global yields and escalating trade tensions between the United States and China.

"Foreigners are selling Indian equities this year. However, local investors keep buying them because domestic investors have shifted their investment focus from other traditional asset classes such as gold and real estates toward equity markets," said Saurabh Jain, AVP - Research at SMC Global Securities.

"Also the low interest rates in bank deposit, growing income levels in smaller towns, together with financial inclusion policies have attracted retail investors towards mutual funds."

Foreigners have sold $750 million in Indian equities in the first half of 2018, compared with about $10.5 billion worth of purchases by domestic funds, data from stock exchange and mutual fund association showed.

Graphic - Foreign versus domestic flows into Indian equities

Systematic investment Plans (SIPs), which allow an investor to invest a fixed amount regularly in mutual fund schemes, are gaining popularity in India as they are cheap and returns are less volatile compared with lump sum investments.

India's mutual fund industry has mobilised 341.8 billion Indian rupees ($4.98 billion) through SIPs in the first five months of 2018, a 60 percent growth compared to last year, data from the Association of Mutual Funds of India showed.

"The investors have not really seen significant hit on their SIP returns as yet and so the inflows should continue," said Rajat Agarwal, as strategist at Societe Generale.

"We continue to think that the domestic liquidity will support the equity markets,"

Graphic: Indian equity funds' assets under management

(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan & Shri Navaratnam)

© Reuters News 2018