MUMBAI/BENGALURU, June 7 (Reuters) - India's institutional investors have been buying shares this week after an unexpected slim majority for Prime Minister Narendra Modi-led alliance battered the markets and led to hefty sales by overseas investors.

The benchmark Nifty 50 index slipped the most in four years on Tuesday, when the election results were announced. The benchmark index has since gained more than 7%, and is only 2% lower than its close on Monday, when it had hit a record high after exit polls over the weekend predicted a landslide victory for Modi.

Overseas investors have been selling Indian equities this year and the outflows have intensified since the election results.

Foreign institutional investors sold shares worth 249.60 billion rupees ($2.99 billion) from Tuesday to Thursday, including a record 124.36 billion rupees on Tuesday, provisional data from the National Stock Exchange of India showed.

Meanwhile, domestic institutional investors bought 82.73 billion rupees of shares on Wednesday and Thursday after selling 33.19 billion rupees on Tuesday, the data showed.

It is surprising the stock market has not fallen more in the recent days, "given that the market has been driven by surging retail investor inflows in recent months", Chris Wood, head of global equity strategy at Jefferies said in his weekly GREED and fear newsletter.

Total domestic retail inflows into Indian equities - including direct retail trading, mutual fund inflows and flows via other sources - have been running at more than $7 billion a month in the first four months of this year, Wood said, citing Jefferies estimates.

Still, foreign investors' selling may continue to weigh on shares in the near term.

For foreigners, "valuations are relatively higher compared to other emerging markets like China and some re-allocation is obvious", Chandraprakash Padiyar, senior fund manager at Tata Mutual Fund said.

Padiyar expects foreign redemptions to continue and flows to be volatile until clarity emerges on the government's policy trajectory.

($1 = 83.4550 Indian rupees)

(Reporting by Sethuraman NR in Bengaluru and Bharath Rajeswaran in Mumbai; Editing by Mrigank Dhaniwala)