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After months of inflows into equity mutual funds, investor appetite appears to be cooling—particularly in sectoral and thematic categories. March 2025 witnessed a significant slowdown in fund flows, with Infrastructure and Energy funds recording their largest redemptions since the COVID period, following a similar trend seen earlier in Manufacturing funds.
According to mutual fund flow data analysed by Elara Capital, pure equity scheme inflows in March dropped to Rs 25,000 crore, marking a 1-year low. This is a sharp decline from Rs 29,000 crore in February and down 40% from the record Rs 42,000 crore inflow in October 2024.
The biggest pullback has occurred in Thematic and Sectoral funds, which saw a marginal inflow of just Rs 170 crore in March—a collapse from Rs 22,400 crore in June 2024, signaling fading investor enthusiasm for niche strategies. The table below shows flows into various Sectoral & Thematic funds. Largest euphoria in this cycle was in Manufacturing, Innovation, Business Cycle and Infra funds. However, most of these categories have finally started seeing a big slowdown in flows. Slower outflows have already begun from Manufacturing, Infra and Energy funds:
"Within the Thematic funds, Manufacturing funds witnessed outflows for 2nd month while Innovation and Quant funds recorded their 1st outflow in nearly 2-years. Within Sector funds, Infrastructure & Energy/Power funds also saw first outflow in 2-years, which is also largest redemption post COVID," said Sunil Jain of Elara Capital.
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Sectoral Slowdown: Manufacturing, Infra & Energy Hit Hard
Funds that were previously hot favorites—Manufacturing, Innovation, Business Cycle, and Infrastructure—are now witnessing significant outflows:
Manufacturing funds recorded outflows for the second consecutive month.
- Innovation and Quant funds saw their first outflow in nearly two years.
- Infrastructure and Energy/Power funds posted their first outflow in two years, which also marks the largest sectoral redemption since the pandemic.
- This downturn comes after a period of high optimism and strong returns.
Contrasting Trend: Mid & Small Caps Still Resilient
Despite the market correction, Small and Midcap funds continue to see strong inflows, defying the broader trend. March saw Rs 4,100 crore flow into Small Cap funds, which is 30% above the 1-year average. Large Cap funds, which had underperformed for over two years, have been gradually regaining investor interest since August 2024.
NSE500 Trends Signal Shift Toward Large Caps
A structural shift is also underway in the broader market. For the first time since 2020, index weights in NSE500 are tilting heavily back toward the Top-50 large-cap stocks. This trend is reminiscent of previous cycles in 2010 and 2018, which preceded prolonged bear phases in Small and Midcap stocks.
With the increased concentration in large-cap names, mutual fund allocations may also start favoring stability over high-growth volatility, which could further influence retail investment trends in the coming quarters.
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