Mutual funds (MFs) appear to have adopted a measured approach to equity markets in April, even as they continued to receive strong inflows.
MFs purchased equities worth about ₹ 26,000 crore in April (till April 28), a sharp moderation from the record ₹ 1 trillion deployed in March, according to data from the Securities and Exchange Board of India (Sebi).
This moderation came despite net inflows into active equity schemes remaining broadly steady.
Industry watchers said the sharp drop in net purchases by fund managers was not on account of weaker inflows, but rather a tactical call amid a sharp market rebound and intermittent buying by overseas investors.
According to two senior MF officials aware of the industry’s aggregate estimates, net inflows are likely to exceed ₹ 35,000 crore in April, compared with ₹ 40,450 crore mobilised in March.
The shift in MF investment behaviour coincided with a sharp reversal in market performance. Benchmark indices — the Nifty 50 and the BSE Sensex — ended April with strong gains after a steep 11 per cent decline in March amid rising US–Iran tensions. The Nifty 50 rose 8.3 per cent during the month, while the Sensex gained nearly 7 per cent.
According to experts, lingering uncertainty around geopolitical tensions, along with the onset of the earnings season, may have prompted fund managers to adopt a cautious stance.
“The extension of the Middle East conflict could have led to greater degree of caution among fund managers. In addition, the onset of the earnings season may have resulted in a ‘wait and watch’ approach by fund managers to assess which sectors and stocks show greater or lesser crude impact on the fourth quarter earnings and on the guidance for the financial year 2026–2027 (this quarter is crucial to arrive at a one-year forward price-to-earnings estimate for the market). They could have also raised cash for future deployment as earnings season progresses,” said Sunil Subramaniam, market expert and founder of Sense and Simplicity.
While equity fund managers are mandated to remain largely invested, they retain the flexibility to hold some cash in anticipation of better buying opportunities. Many managers had already deployed part of their cash during the sharp correction in March. As a result, the aggregate cash holding of equity schemes fell to a 21-month low of 4.7 per cent in March, according to a report by BNP Paribas.
Beyond changes in cash levels and flows into active equity schemes, MF equity deployment is also influenced by flows into passive and hybrid schemes. In particular, shifts in the equity allocation of hybrid funds can have a meaningful impact on overall market deployment by mutual funds.