'Game of patience': MF investors eye bull mkt despite nil returns for 2 yrs

MF investors see zero returns but SIP inflows remain strong. Analysts say patience may be tested, even as bull market hopes build

No market returns for two years: Can MF investors hold their nerve?

  Retail investors, investing in the Indian stock markets via mutual funds (MFs) have displayed remarkable resilience over the past two years, despite zero returns during the period. Though such prolonged periods of dull returns have, historically, led to a bull run, analysts say weak returns is emerging as a key risk that could test investor patience in the coming months. 

According to analysts at Kotak Institutional Equities, investors have continued with their systematic investments plans (SIPs) and added lump-sum investments during the market correction despite weak trailing returns. 

 

  "Though this underscores the structural shift towards disciplined investing, the conviction levels of new and old retail investors may get tested further if trailing returns were to stay muted," it said in a recent report. 

 

Retail investors say 'mutual funds sahi hai'

Recent Amfi data shows that retail investment remained intact in March 2026 with inflows via systematic investment plan (SIP) hitting a record ₹32,000-crore mark. 

This resilience was visible across categories, though most mutual fund segments saw a shift towards passive funds, multi-asset strategies, and flexi-cap funds in early 2026.

  Equity-oriented MF schemes have seen an inflow of ₹90,500 crore, so far in 2026, led by Flexi-cap funds (₹24,700 crore), Mid-cap funds (₹13,300 crore), small-cap funds (₹13,100 crore), and Large & mid-cap funds (₹11,600 crore).

  Hybrid funds, meanwhile, have seen inflows of ₹12,800 crore in 2026. Between active and passive funds, the former has seen flows worth ₹1,11,500 crore and the latter ₹46,200 crore.

 

'Game of Patience'

That said, Kotak report highlights that returns have been quite abysmal for two years now. The brokerage's analysis of equity-oriented funds shows that investors who entered markets between July 2024 and March 2026 have seen weak or even negative returns in several cases.  

Notably, small-cap and thematic funds -- which attracted a meaningful share of flows – have performed "far worse than the overall equity funds in the past 21 months".

  "The conviction levels of new and old retail investors may get tested further if trailing returns were to stay muted," the report cautioned. 

  That apart, Kotak's report further pointed out that while mutual fund participation remained steady in Q1CY26, direct equity investing appears to be losing traction. 

  "Most fund types witnessed an increase in retail flows in March 2026, even as the allocation toward passive funds, multi-asset funds, and flexi-cap funds saw a sharp increase in 1Q1CY26. At the same time, the active retail investor base shrank in FY26, suggesting a gradual weakening in the DIY-investing trend seen over FY21-25," the report said.

  Going head, analysts at the brokerage caution that even as strong inflows have absorbed persistent foreign portfolio investor (FPI) outflows in recent months, moderating cash levels within funds is limiting their ability to cushion future volatility.

  "FPIs may continue to keep a nuanced stance towards India until India's earnings outlook and valuations versus other major emerging markets (Ems) improve materially. Cash levels of MFs, on the contrary, have come off, resulting in lower buffers against continued FPI selling," it said.

 

Bull market ahead? 

Despite the concerns, analysts at Morgan Stanley, in a recent report, said that India could be on a cusp of a bull market as trailing 12-month performance, valuations, positioning, and earnings – all support a major recovery in Indian stocks over the coming months.  

"Persistency in positive growth signals; continuing policy reform; evidence that AI is not hurting India but actually helping productivity; a sell-off in the AI trade; and surge in buybacks to create new marginal demand for stocks are key catalysts for a bull market in India," Morgan Stanley said in its April 8 report.

  Historically, too, Indian markets have seen multibagger returns following muted returns for at least 18 months.

  An analysis from 2001 to 2024, by Edelweiss Asset Management, shows that Indian stock markets staged a sharp rebound after delivering muted returns for 18 months.

 

Source: Edelweiss AMC

  Markets, data shows, saw stellar returns of up to 81 per cent one-month after the 18-month drought and up to 248 per cent returns 36 months later. 

  On its part, Morgan Stanley has maintained its base-case BSE Sensex target of 95,000 through December 2026. 

  "This level suggests that the Sensex would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate and a predictable policy environment," it said.

 

Source: Morgan Stanley

  The brokerage's bull-case pegs Sensex December 2026 target at 1,07,000, while bear-case pegs it at 76,000. 

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