Foreign flows into India drying up: Macquarie

India thus "may be staring at a possible negative 12 month forward returns," Macquarie says.

The controversy over taxation for foreign investors, as well as macro challenges, are key reasons for net outflows of foreign institutional investors (FIIs) in April vs strong Jan-March inflows, Macquarie says.

Indian stocks look historically cheap, but is trading at a premium of around 33 percent vs emerging markets vs the long-term average of 27 percent, Macquarie estimates.

Nifty is seen trading in 5,000 to 5,500 range and the Sensex in 16,000 to 18,000 range, as "global liquidity glut" to provide some support, Macquarie says.