Indian Equity Fund Inflows Rise 8.1% on US Trade Deal

Equity mutual fund inflows in India climbed in February, ending a two-month period of stagnation as corporate earnings stabilized and a new trade agreement with the United States lifted investor confidence. Data released by the Association of Mutual Funds in India on Tuesday showed that inflows rose 8.1% month-on-month to 259.78 billion rupees ($2.82 billion). Despite the overall rise, systematic investment plan (SIP) contributions fell slightly to 298.45 billion rupees from 310.02 billion rupees in January, a decrease attributed to the shorter calendar month and fewer trading sessions. Himanshu Srivastava of Morningstar Investment Research India noted a significant shift in where capital was being directed: > A notable feature of the month was the sharp pickup inflows into the mid-cap and small-cap mutual fund categories. This trend was mirrored in index performance, where broader mid-caps rose 1.2% and small-caps gained 0.3%, even as the benchmark BSE Sensex and Nifty 50 indices fell by 1.2% and 0.6% respectively. In a reversal of previous trends, gold exchange-traded funds (ETFs) saw a dramatic reduction in interest, with investments sliding to 52.55 billion rupees from 240.4 billion rupees in January. Foreign investors also returned to the market as net buyers for the first time in four months, purchasing 226.15 billion rupees worth of shares. While these investors sold 169.49 billion rupees of IT stocks due to fears regarding artificial intelligence, they heavily favored sectors such as financials, capital goods, metals, and energy. Market sentiment was further supported by a trade deal signed in early February that reduced tariffs on Indian exports to the U.S. from 50% to 18%, in exchange for limited agricultural market access.