Is the charm of equity markets declining? Well, as per the recent AMFI data, the net inflows to equity mutual funds have dropped to 12-month lows, and this is the fourth consecutive month of lower inflows. The April inflows are at Rs 24,269.26 crore, down over 3% from March inflow of Rs 25,082.01 crore.
Himanshu Srivastava – Associate Director- Manager Research, Morningstar Investment Research India, explained that, “This softening is likely driven by mounting global uncertainties, particularly the intensifying U.S.-led tariff war and the deteriorating regional security climate. These factors have led some investors to adopt a cautious stance. The quantum of flows however, remains significant, especially in the backdrop of escalating geopolitical tensions between India and Pakistan following the Pahalgam terrorist attack on April 22.”
Dr. Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital pointed out that, “However, small caps and midcap funds continue getting larger inflows compared to large caps. Given that the large caps are, typically, higher quality companies and are broadly available at a larger discount to their intrinsic values, it would have been better if investors allocated to them more.”
However, large caps too have seen some uptick in overall inflows. Most market experts termed it as a positive.
Inflows improve in debt categories
Debt categories like liquid, overnight, money market, and ultra-short, however have seen a six-month high in inflows. Hybrids have bounced back, especially arbitrage funds with inflows of Rs 11,000 crore this month, According to Suranjana Borthakur, Head of Distribution & Strategic Alliances, Mirae Asset Investment Managers (India), this indicates that “indicating “they are being seen as a safe space to park funds before further deployment. Overall, the flows suggest that investors are making thoughtful and balanced allocation decisions.”
Outlining the trends overall, Suranjana Borthaku added that “For long-term portfolios, we continue to believe that mid- and small-cap allocations are essential for wealth creation. Sectoral funds witnessed a strong recovery — not driven by new NFOs, but by genuine investor interest — though we recommend keeping these as satellite allocations and not letting them be guided by product euphoria.”
The ELSS, meanwhile, have seen a dip, potentially on the back of the recent changes in taxation, and most experts believe that inflows may be capped in the near future as well.