Inflows into Indian equity mutual funds surged 56% month-on-month to an eight-month high of 404.5 billion rupees ($4.36 billion) in March, as retail investors continued to pour money into equities even as uncertainties centring around the Iran war weighed on sentiment, data from the Association of Mutual Funds in India showed on Friday.
As the month witnessed sharp swings in stock markets due to the Middle East conflict, the data suggests that retail investors are increasingly using market dips as an opportunity to accumulate equities, reinforcing the structural shift toward domestic flows in Indian markets.
SIP contributions and participation hit record levels
Systematic Investment Plans remained a key pillar of inflows, with the number of contributing accounts rising to 97.2 million in March from 94.4 million in February.
Monthly contributions through SIPs climbed to a record nearly 321 billion rupees ($3.46 billion), reflecting steady and disciplined retail participation.
“The surge in inflows reflects sustained retail engagement, financial year-end portfolio allocations, and investors using recent market corrections to deploy incremental capital into equities,” said Himanshu Srivastava of Morningstar Investment Research India in a Reuters report.
Mid and small-cap funds attract strong interest
Among fund categories, mid-cap and small-cap funds continued to draw robust inflows.
Flows into mid-cap funds rose to a record 60.64 billion rupees, while small-cap funds saw inflows jump 61% to 62.64 billion rupees.
Large-cap funds also saw healthy inflows, rising 42% to 29.98 billion rupees.
Analysts said the recent correction in mid and small-cap stocks has eased valuation concerns, making these segments more attractive to investors.
Domestic flows offset foreign selling
The resilience in domestic inflows stands in contrast to continued selling by foreign portfolio investors.
FPIs offloaded a record $12.7 billion worth of Indian equities in March, reflecting concerns over rising crude oil prices and the potential impact of geopolitical tensions on growth and earnings.
Benchmark indices Nifty 50 and Sensex fell 11.3% and 11.5%, respectively, during the month, marking their worst performance in six years and confirming a technical correction.
Broader markets also declined, with small-cap and mid-cap indices dropping 10.2% and 10.9%, respectively.
Despite this, domestic investors stepped in aggressively, cushioning the impact of foreign outflows and stabilising markets.
Debt funds see sharp outflows, gold demand cools
Debt mutual funds recorded significant outflows of 2,940 billion rupees in March, compared with inflows of 421 billion rupees in February.
Meanwhile, inflows into gold exchange-traded funds declined sharply.
After hitting a record 240.4 billion rupees in January, gold ETF inflows dropped to 23 billion rupees in March, indicating a shift back toward equities.
Analysts at ASK Investment Managers said the recent correction has improved the medium-term outlook for equities, noting that markets typically recover quickly from geopolitical shocks once conditions stabilise.
Markets rebound on ceasefire hopes
Indian equities showed signs of recovery toward the end of the period, supported by easing geopolitical tensions.
The Nifty 50 rose 1.16%, and the Sensex gained 1.2% in Friday’s session, extending weekly gains to about 6.5%.
The rebound helped the benchmarks snap a six-week losing streak, suggesting that investor sentiment may be stabilising.
Going ahead, market direction is likely to hinge on global developments, particularly oil prices and geopolitical risks, even as strong domestic inflows continue to provide a cushion against external shocks.
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