(Updates story to latest market levels, adds chart for domestic buying, Sensex)

MUMBAI/BENGALURU, June 7 (Reuters) - India's equity benchmarks have rebounded from election result day losses as domestic investors piled on shares after an unexpected slim majority for Prime Minister Narendra Modi-led alliance led to hefty sales by overseas investors.

The blue-chip S&P BSE Sensex and NSE Nifty 50 were back at levels seen before the shock election results on Tuesday, when they had slipped the most in four years. The indexes have since gained 9%, and are hovering around their closing levels on Monday, when they had jumped to record highs after exit polls predicted a landslide victory for Modi.

Modi was formally elected on Friday by lawmakers of his alliance to be prime minister for a historic third consecutive term.

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.

Foreign ownership of Indian stocks is at decadal lows of just over 16%, compared with 20% at end of 2020, according to data from Mumbai-based brokerage ICICI Securities.

In contrast, ownership of Indian stocks by domestic institutional investors and retail investors via monthly systematic investment plans has risen.

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.

Indian equity funds saw their largest inflows on record at $1.2 billion in the week to Wednesday, Bank of America said in a report on Friday, citing EPFR data.

($1 = 83.4550 Indian rupees)

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