India Equity Fund Flows Draw More Cash as Investors Buy the Dip Samie Modak Flows into Indian equity mutual funds rose for a second month even as stocks tumbled in September, suggesting domestic investors viewed market declines as a buying opportunity. Equity funds attracted 383.1 billion rupees ($4 billion) last month, up nearly 31% from 293.3 billion rupees in August, data from the Association of Mutual Funds in India showed. Small-cap funds received a record 90.4 billion rupees ($944 million), while mid-cap funds drew 78.3 billion rupees. Large-cap funds attracted 42.3 billion rupees, snapping two straight months of outflows.
While systematic investment plans remain the anchor for sustained flows into equities, investors have also tended to step up lump-sum investments during deeper market corrections. We saw that play out again in September, with inflows broadening across equity categories,” said Kaustubh Belapurkar, director, fund research at Morningstar Investment Adviser India Pvt. The market selloff has brought valuations down sharply, with the Nifty trading at about 16.5 times its one-year forward earnings, its cheapest since mid-2020.
The broad-based inflows came despite a sharp selloff in Indian equities, driven by rising US bond yields, elevated oil prices and sustained foreign selling. The pickup suggests local investors are using the market’s weakness to add exposure rather than retreat, providing a cushion for stocks at a time when foreign demand remains fragile. The benchmark Nifty 50 index fell more than 6% last month, its steepest monthly decline since March. The Nifty Midcap 100 lost 7.6%, while the Nifty Smallcap 250 saw a relatively shallower fall at 3%.
Investors also poured a record 324.9 billion rupees into monthly recurring plans in September, showing they are staying the course even after more than two years of lackluster market returns. Indian mutual funds have poured about $42 billion into local equities so far this year, offsetting $30 billion of net withdrawals by foreign funds."Strong flows into small and midcaps show investors are growing more comfortable with volatility and more confident in the riskier end of the market. Interest in large caps is also returning,” said Nirav Karkera, head of research and fund manager at W by Groww, a wealth management platform.
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