New Delhi, July 13 -- Despite recent market volatility, foreign investor inflows into Indian stocks could recover because overseas investors are still holding fewer Indian equities than usual after months of heavy selling, according to a Goldman Sachs India Strategy report.

The report said global investors have significantly reduced their investments in Indian equities this year. If confidence in India's domestic economic recovery improves, it could lead to fresh foreign investment.

"Foreign selling is likely over, and sentiment should turn incrementally favourable on improved domestic outlook and ultra-light foreign positioning," Goldman Sachs said in its India Strategy report titled "Room To Recover".

Explaining the basis for its vie...