India's equity mutual fund inflows hit nearly two-year high on small-cap surge

Equity inflows surge: India witnessed a notable surge in inflows into its equity mutual funds during January, marking a nearly two-year high. This upswing was primarily fuelled by sustained investor interest in small-cap funds, reflecting a growing appetite for riskier assets in the market.

According to data released by the Association of Mutual Funds in India (AMFI), net equity mutual fund inflows experienced a substantial 28 per cent sequential increase, reaching Rs 217.81 billion ($2.62 billion), the highest since March 2022. Venkat Chalasani, the chief executive of AMFI, attributed this growth to a positive macroeconomic outlook and stable earnings, which have boosted investor confidence across all segments of the equity market.

Small-cap dominance continues

Small-cap funds emerged as the top choice amongst equity-oriented schemes for the 16th consecutive month, attracting investments worth Rs 32.57 billion. Meanwhile, mid-cap inflows surged by 48 per cent month-on-month to Rs 20.61 billion, and large-cap inflows hit a 19-month high in January.

Aishvarya Dadheech, Founder, Fident Asset Management, advised investors to consider increasing allocations to large-cap funds. However, he highlighted that money is expected to continue flowing into small- and mid-cap segments, driven by anticipation of strong near-term returns, particularly in the lead-up to upcoming elections.

Small & mid-cap outperformance

In 2024 thus far, small- and mid-cap funds have outperformed the benchmark Nifty 50, posting gains of 9.5 per cent and 14.8 per cent, respectively, compared to the index's modest 0.3 per cent rise. Dadheech highlighted potential buying opportunities in sectors expected to benefit from policy continuity in the coming months.

This marked the 35th consecutive month of equity inflows on a net basis, reflecting sustained domestic investor confidence. Despite selling by foreign portfolio investors, particularly in financials, following lacklustre results from HDFC Bank, India's benchmarks witnessed limited losses in January, with the Nifty 50 down marginally by 0.03 per cent and the Sensex shedding 0.68 per cent.

Furthermore, contributions to systematic investment plans (SIPs), where investors make regular payments into mutual funds, reached a new record of Rs 188.30 billion in January. The number of SIP accounts also climbed to a new high of 79.20 million, indicating a growing trend of retail investor participation in the mutual fund market.