Domestic funds back India, foreigners pull back
Domestic equity fund inflows into India accelerated in March to one of the highest levels on record, while foreign portfolio investors showed greater caution and pulled back from Dalal Street. That divergence means local liquidity may keep markets afloat even as overseas capital becomes less reliable. (bloomberg.com) (livemint.com)
Indian households kept buying Indian stocks in March even as overseas investors headed for the exit. Equity mutual funds took in ₹40,450 crore in March, up 56% from ₹25,977 crore in February, and systematic investment plan contributions hit a record ₹32,087 crore. (livemint.com) That ₹40,450 crore was the second-highest monthly equity mutual fund inflow on record in India. Bloomberg reported the jump on April 10, after the Association of Mutual Funds in India published its March 2026 data. (bloomberg.com) (amfiindia.com) At the same time, foreign portfolio investors were pulling money out of Dalal Street instead of adding more. Mint, citing National Securities Depository data, said foreign portfolio investors had already sold ₹177,271 crore of Indian stocks in 2026 by April 10, after selling ₹166,286 crore in all of 2025. (livemint.com) March was the breaking point for that split. Multiple reports based on National Securities Depository data said foreign portfolio investors sold about ₹1.17 lakh crore of Indian equities in March alone, the heaviest monthly outflow on record. (livemint.com) (thehindubusinessline.com) The immediate trigger was not a mystery. Indian stocks sold off in March as the war involving the United States and Iran pushed Brent crude higher, and Bloomberg reported on March 19 that the Nifty 50 Index fell 3.3% in one day, its biggest drop since June 2024. (bloomberg.com) Oil matters more to India than to many markets because India imports most of the crude it uses. Mint said global investors now see India as exposed to an oil shock, which can widen the current account deficit, weaken the rupee, and push up inflation. (livemint.com) Foreign investors also see Indian stocks as expensive after a long rally. Mint reported that benchmark valuation multiples remain high compared with many other emerging and developed markets, even as earnings growth expectations have moderated. (livemint.com) Domestic money is behaving differently because much of it now arrives on autopilot every month. The record ₹32,087 crore of systematic investment plan inflows in March means millions of investors kept sending fixed sums into mutual funds during a selloff instead of waiting for calmer prices. (livemint.com) Where that money went also tells the story. Flexi-cap funds drew ₹10,054 crore in March, small-cap funds took ₹6,263 crore, and mid-cap funds took ₹6,063 crore, showing that retail investors were still willing to buy broad-market and riskier segments while foreign investors were cutting exposure. (livemint.com) This does not mean foreign money stopped mattering. Mint noted that foreign portfolio investors still influence liquidity, valuations, sector leadership, the rupee, and day-to-day sentiment, even if domestic institutional investors now cushion the blow better than they did a few years ago. (livemint.com) So India’s market is starting to look less like a shop that depends on one big customer and more like one kept open by regular locals. March showed that domestic flows can hold up the floor, but it also showed that when oil spikes, the rupee weakens, and valuations look stretched, overseas capital can disappear very fast. (bloomberg.com) (livemint.com)
