Equity MF inflows seen improving in April after three months of decline

Equity MFs see higher inflows in April after a brief lull, driven by Rs 16,050 crore in secondary market buying and stable SIP flows, despite weak fund returns

Sharp increase in secondary market purchases by fund managers in April may lead to a rebound in equity mutual fund (MF) inflows, which saw three months of consecutive decline.

 

In April, MFs’ net equity buying surged to ₹16,050 crore from ₹12,141 crore in March. However, it remains below the FY25 average of ₹39,000 crore a month.

 

The uptick coincided with a 3.5 per cent rise in the Nifty50 in April, following a 6.3 per cent gain in March. It was buoyed by a strong revival in foreign fund buying streak in nearly two years.

 

After back-to-back months of gains, the benchmark indices — Nifty50 and Sensex — are now only around 7 per cent below their record high, hit in September 2024. However, the midcap and smallcap indices are still more than 10 per cent lower.

 

Inflows into equity MFs remained resilient during the initial months of market downturn, which began towards September-end. However, flows have remained soft vis-à-vis their recent averages since January. The slowdown in net collections has mostly been due to a decline in lumpsum inflows amid a fall in new scheme launches.

 

Net inflows into active equity schemes dropped for a third consecutive month to ₹25,082 crore in March from ₹41,156 crore in December. However, SIP inflows have largely remained unaffected.

 

Investors have put in around ₹26,000 crore through SIPs in recent months compared to the all-time-high of ₹26,459 crore in December 2024. 

 

The quantum of net equity buying by MFs depends on several factors — inflows and outflows from equity (including passive) and hybrid schemes, changes in equity allocation in hybrid schemes, and changes in cash holdings. This week, UBS upgraded domestic equities to “neutral” to identify both positives and negatives.

 

“India ticks many boxes — high domestic focus, earnings resilience, beneficiary of lower oil prices, and positive catalysts like banks' deposit rate cuts and potential government support for consumption,” said Sunil Tirumalai, head of emerging markets (EM) and Asia Equity Strategy, UBS.

 

He, however, also pointed out that the fundamentals remain lacklustre due to sharp earnings cuts, uncertainty on government’s focus towards growth and investments and high valuations compared to historical averages.

 

Experts believe inflows could pick up if the recovery in the equity market sustains and improves the near-term performance scorecard for equity funds.

 

“As the base effect of the first six months of last financial year wears away, the rally will give positive returns for the later instalments. And, one-year SIPs should turn positive from July-August onwards,” said market expert Sunil Subramaniam.

 

Majority of the equity funds have delivered negative returns in the one-year period despite market recovery.

 

Smallcap and midcaps, which are the favourites among investors, have seen the worst performance among all major equity fund categories. One-year returns of all the schemes were in the red.